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.
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