Market experts and top politicians sitting in government are continuously saying that Indian economy and its fundamentals are strong enough to defy gravity even the fears of a US recession sending plummeting to stock markets across Europe and Asia. However, Indian stock market saw terrible downfall in sensitive indexes in the third week of January. On January 8, BSE’s Sensex had crossed the 21,000 mark by covering 1,000 points from 20,000 in just 49 days.
Investors across the globe were expecting just another downfall every second day in their own stock markets but here in India investors were banking upon new optimism everyday. The whole world saw the overwhelming response received by Anil Dhirubhai Ambani Group-backed Reliance power’s Initial Public offers (IPO) in the second week of January.
It was recorded as India’s largest ever bid for any IPO offering at $2.9 billion. It was oversubscribed within just 60 seconds when opened on January 15. Till January 18, last day of the opening, the Reliance Power IPO was oversubscribed 73 times. It looked like equity trading had become biggest career choice in India.
However, a disaster was in waiting to arrive and everyone was unaware about it. The downfall in Sensex happened all of a sudden as it had gone in upward direction in previous months. The Indian share marker just lost 13 per cent in a week amounted to $375 billion. The amount is 2.2 times of the country’s budget. ‘Corrections’ in Sensex gave brokers no time to take breath of relief and recover.
Investors in Dalal Street have lost more than Rs 16 trillion in last seven days when index went down more than 4,000 points. They couldn’t even think to reduce the losses they had made in just 5-7 days. Retail traders or short-time investors across the country received major jolt. The disaster even forced a stock broker to attempt suicide on last Tuesday. Doctors in major cities started attending spurt of patients complaining cardiac problems and majority of them had invested large amount in share markets.
Were the brokers and retail traders, who generally spend hours in Dalal street, really unaware of this disaster the market experienced in three days? This might be true that Indian markets were performing well despite the global recession but there was always a good reason to doubt the Bull race in Indian market. Today our political leaders are saying that fundamentals of Indian economy are strong. But, has India much immune to digest the global impact of the recession facing by other stock markets across the globs?
Indian economy is just two per cent of the world’s economy. If every country is facing recession, India would face the same fate because equity markets in India and US are interconnected. The sense of emotions and psychology are even the same in investors in both the country. How can one say that India will be unaffected from the recession going on in the US?
However, some of the financial experts have said that the recent market correction took place only because of domestic factors not because of international factors. India’s equity markets were facing shortage of cash because big amount was blocked into the bids for Reliance Power IPO. Further, the shortage of margin money and margin calls made the situation worse even beyond imagination.
Some other experts have their own say on the disastrous downfall in Sensex in past some days. According to them, a correction was about to take place since long because the market was going up by showing hasty rise.
Finance Minister P. Chidambaram said on Monday:
Indian economy is very different from the economies which are facing some stress. India has strong economy and its corporate sector is very strong. The sentiments in markets should be in a very positive direction.
However, the major question is that why did the market crash like this? What are the factors behind the disaster happened in stock market? Can the Finance minister or the Prime Minister give retail investors any assurance that it would never happen again? What would happen to the investors who have lost their hard-earned money in just five days?