Markets this week: Gloom, doom and a little bit of sunshine

Published on Sat, Aug 13, 2011 at 16:59 | Source : Moneycontrol.com
Updated at Sat, Aug 13, 2011 at 20:31

In the never-ending battle between the bulls and the bears, bears are clearly winning right now and not without a reason.

The week, which started off with a first-ever downgrade of the world's top economy, has been nothing short of a nightmare for investors. European debt problems and an ever-weakening economic outlook have all contributed to the wild market swings.

However, US stocks shot up 4% yesterday , as bargain-hungry investors overcame the recent wave of fear that drove selling over the last two weeks.

The worry is more from the economic slowdown that we are looking at in US and the debt crisis in Europe, explained Jyoti Vaswani, CIO and Director Fund Management of Aviva India. "The reaction of the market has been more towards the expected slowdown [than the downgrade itself] that we are expecting," she said.

Meanwhile, Ruchir Sharma, global head of emerging markets at Morgan Stanley Investment Management sees the US economy slipping in and out of recession in the next few quarters, with global equities following the relapse pattern. Catch the full interview: Here

The United States faces one-in-four odds of slipping back into recession, and a weaker economic outlook is raising the likelihood the Federal Reserve will soon do more to boost growth, a Reuters poll indicated.

However, markets may not go anywhere close to the lows seen in 2008 and 2009, Sharma told CNBC-TV18.

Tough times continued back home, on Friday, with the frontline indices giving up their early gains and continued to slide into the red. The Nifty slipped below the 5,100 mark and closed with a 65 point cut, while the Sensex shed over 200 points to close at 16,840.

For the week, the both the indices closed down over 2.5% each. [ market commentary]

So is it time to buy? The way it has fallen, surely looks like it, feels Dilip Bhat, joint managing director at Prabhudas Lilladher. "I very strongly believe that markets will continue to make lower bottoms over the next six-nine months," he said.

India's industrial sector delivered a positive surprise in the month of June. The Index of Industrial Production grew at a better-than-expected 8.8% against the 7.4% posted in June of last year. The growth was driven primarily by a smart recovery in the manufacturing and capital goods sectors. [ Experts analyse the numbers]

However, the buoyant number could prove to be a catch-22 for the market as good growth may mean more rate hikes. The Reserve Bank of India raised key interest rates by a steeper-than-expected 50 basis points last month, the 11th increase since March 2010 that are now starting to drag growth.

There could be a one more rate hike coming in, believes Vaswani, but adds, the cycle could be close to the peak. "Having said that, the banking sector will give you an opportunity to accumulate in the next couple of months," she pointed out.

The only thing that can take India out of this rut, feels Sharma, is if the government grabs the bull by its horn and gets some reforms done to put the economy back on track.
Sagar Salvi
sagar.salvi@network18online.com

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