Most of the investors and analysts are unable to cope with this unbelievable rise in Indian stocks especially capital goods and power stocks. Foreign investors and big financial institutions invested heavily in these stocks when markets were crashed in August but many retail investors missed to capitalize this rally. FIIs discounted all the negative news and poured money into Indian stocks after Fed rate cut in September. But will this euphoria last forever?
Why Indian stock markets will crash in October?
1. Political Instability: This is the single most major reason for stock market crash. Investors especially FIIs never like political instability and they will book profits and go to another country. Even though political turmoil will have no significant impact on the growth of companies, stock markets always negatively respond to political instability.2. RBI decision: Don’t expect positive news from RBI. Don’t be fooled by inflation data which is released on every Friday. You will know real inflation in the routine life. No government will allow raising inflation by cutting interest rate cut just before elections. RBI will definitely raise CRR and is major negative news for markets.
3. Negative news: When markets rose too high within a short span, single negative news will create havoc in stock markets. Markets discounted negative news like Crude rise, rupee appreciation, inflation concerns in U.S after fed rate cut and slow down in economic growth etc. How long investors will discount all these negative news?
4. Government policies: If mid-term polls are inevitable, Government prefers people over companies. Popular policies will slow down momentum which will negatively impact investors sentiment towards India.
5. Foreign Investors (FIIs): FIIs were major culprits for August crash and are going to be responsible for October crash. Just see and learn how they are cashing money from every rise?
6. Economic growth: There is a slow down in economic growth if you see the data but markets already discounted 2008-09 earnings especially for high growth sectors like power and capital goods.
7. Profit booking: Shrewd investor always book profits just before every crash whether it is in 2000 or 2006. Greedy investors always lose money in every crash. Decide yourself whether you are greedy or not?
8. US markets: US fed rate cut created euphoria among investors but this will actually show negative impact on the long term on credit crisis. It treated chronic disease in acute manner. Instead of curing root causes of credit concerns, it went in superficial manner which will cause inflation pressure in America and severely impact economy.
Stock markets will continue to surprise us as they no longer represent a country’s economy. Markets are in the grip of few investors who can manipulate stock prices according to their will. Why Reliance rose above 2,400, can anyone explain me? Can anyone explain me the changes in Indian economy from August to September?
Closely watch Q2 results and movements of political parties and take a quick decision. This exceptional rise is no way responsible to economy and next crash will not be due to economy. It is better for retail investors to book profits and watch the unfolding scenes to enter the next rally. But I still believe in long term Indian story but not Foreign investors.
Please share your opinion on my views.
