Bear Hug

The stock market is in a tailspin, with the Sensex plunging every day, now very close to its lowest level of 2012. The worst part is that there are no signs of a revival, as the government continues to battle other issues, casting reforms aside.

The rupee is falling unabated at a faster clip against the dollar. In the last one month, the rupee has fallen by more than four per cent, and the news is that it may plunge to levels of 56-57 in the near future. This is neither good for the stock market, nor for the economy. A declining rupee means that FII investments in dollar terms take a beating, wiping out the incentive to invest in the Indian equity market. On the other hand, FDI will have to wait, for India is no longer a hot destination what with the Vodafone issue creating ripples amongst foreign investors. FDI investors would delay investments in the hope that a fall in the value of the rupee would mean lesser investment in dollar terms.

The Euro zone again has created turbulence in the world market, as the elections in Greece and France brought in new governments, creating some amount of doubt about the Euro zone’s commitment to come out from the crises. Today, the world is talking about the possibility of Greece breaking away from the Euro zone, which is creating ripples in the global market. Due to this, the dollar has again become a favourite as a safe investment instrument.

This time, our cover story is on the rupee falling against the dollar. It is no rocket science that a falling rupee hurts the economy when the fall is steep. However, there is a silver lining, which is that a falling rupee does benefit companies, especially those which are in the export markets. Our analysts have found five such companies that would benefit from the falling rupee, as these companies neither have any forex loans nor have a high import requirement, but they do have substantial exports revenue. I am sure our readers would take a hard look at these companies in a market where hope is fading fast.

The quarterly results for March 2012 clearly suggest that India’s growth has taken a huge beating. But my worry is that many corporates have not given a very exciting future guidance either. They believe that the next couple of quarters would be challenging and hence, advise their investors to keep expectations low. So, my sense is that Indian companies would continue to report below par performance for at least next two quarters.What is worrisome is that Indian promoters have almost stopped investing in capex plans. Of late, no Indian promoters have announced big ticket expansion plans as the economic situation is fluid.

On the other hand, expansion plans that were announced earlier have been put on hold or moved on to the slow track. The latest IIP numbers for March 2012 showed a decline of 3.5 per cent. This suggests that India is facing a peculiar position, where on one hand, growth is tapering off and on the other hand, inflation continues to remain much above the comfort level (the WPI for April 2012 stands at 7.23 per cent). From the current scenario, it looks tough that the Indian markets would rebound in a hurry. So, play your cards well.