Post the September quarter earnings, the market may remain bearish in the short to medium term due to stretched valuations with earnings not likely to pick up soon and further downgrades by analysts for FY 2016 and 2017. Also, the Fed rate hike is not going to be a one-off affair; rather, there may be a series of hikes. The world markets, especially the emerging markets, are likely to be on tenterhooks. Despite improved macro-economic fundamentals, India may still not be completely immune due to the impact the Fed hike may have on the outflows of FPI money. The global recovery too is taking longer than expected, resulting in Indian exports falling by 17.3 per cent y-o-y in October, the 11th successive month of contraction.
Most analysts feel that the dollar rally has just begun and that the rupee may weaken further. A weak rupee will not only push up inflation but can also result in financial trouble for companies that have un-hedged dollar loans as the rupee cost of their debt will mount. The dollar debt of Indian companies has grown rapidly and is estimated at $125 billion now. Though global oil prices are generally seen to have a negative correlation with the dollar, it is yet to be seen whether the trend holds this time too. All this can have a serious impact on the financial stability of the economy. The banking system continues to be under considerable stress, which is affecting both the earnings momentum for the market and investment activity in general.