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Traumatic times

During 2008 Indian stock markets saw huge fluctuations. An investment made in the stocks covered by the benchmark index, Sensex, in January 2007 would be worth 54 per cent less now. The extreme volatility on many days suggested that even the large institutional investors had no clues about immediate market movements. That again is borne out by the fact that practically all equity-based mutual funds have underperformed the benchmark indices during the year. At the beginning of 2008, stock markets were looking up. Indeed leading merchant banks had forecast the Sensex crossing 25,000 by the end of the year. Indian stock markets, reckoned among the top three in the world a year ago, have since joined the ranks of the worst performers among the emerging ones. An immediate consequence of the economic crisis, which hit the emerging markets more than the others, has been the flight of capital. India witnessed an outflow of $13 billion during the last quarter of 2008.

It is little consolation that compared to some other emerging markets such as those in Latin America and Russia, Indian markets have done well. Unlike those countries, India is not a significant exporter of commodities, whose prices fell sharply during the second half of 2008. In general, the fact that the Indian economy is not export-driven has been to its advantage at a time when the major importing nations in the developed world are in recession. A sustained recovery in the stock markets depends on how soon the developed countries start recovering. The prognosis is not bright at the moment. For now, stock market investment avenues continue to be bleak for most investors. Barring bank deposits, there have been very few worthwhile options in or outside the stock markets. On the positive side, capital market regulation in India ought to be commended for its stabilising role. Unlike regulators in other countries, SEBI did not attempt to check volatility through ad hoc measures such as halting trade for a long time, and freezing index sales. It is also a positive reflection on the regulatory framework that no scam has emerged in the Indian bourses even in these stressful days.

"An investment made in the stocks covered by the benchmark index, Sensex, in January 2007 would be worth 54 per cent less now," said the Editorial, "Traumatic Times" (January 5, 2009). It should have been January 2008.

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