ithought market wrap No. 40, 26 July 2011
Forecasting market sentiment is far worse than forecasting the weather. Weather forecasting has advanced technology at work to help predict it. But, matters of the mind can’t be predicted by advanced technology. When people will overcome fear and make investment decisions is not easy to forecast. The markets are snowballing downwards and the worst pain is probably set to hit us. Investors are scurrying for cover and price seems to hardly matter as stocks get sold without cognizance of their value. The global investment climate seems to be too intimidating for fresh monies to enter stocks. But, the silver lining is the monsoon which has recovered and given us enough rains to sustain our food production. With agriculture delivering stable growth, the fears of India’s growth slowing significantly will recede. But, the market needs stronger global signals to change course.
The behavior of gold prices has been the story of the week. It peaked only to crash and then recovers. Investors tend to get hurt more when they buy the dips and gold seems set to inflict losses on investors who are late entrants of the rally or early buyers of the dip. The selling in stocks continues unabated and the prospect of market stabilizing in the coming weeks depends entirely on global cues. America’s decision on continuing with easing, Europe’s woes with its banking system and emerging market sentiment will determine global fund flows. The domestic mutual funds which have been able to cushion the markets from the impact of FII selling may come under serious strain if markets fall further. This is really the worst time for redemptions to hit stocks and any fall in the indices will expose us to that risk.