Indian stock market is down by 800 odd points in the last 2 days and is already at the 2006 levels.
Nobody is sure if we have reached the bottom or if there is still some pain. RBI has reduced the CRR (credit reserve ratio) to 8.5% to increase liquidity and hence boost the markets. CRR is the rate at which banks need to keep funds with the Reserve Bank.
SEBI has re-introduced the P-notes (participatory notes), which were banned in late 2007. These are instruments through which foreign investors can invest in Indian equity without registering themselves with SEBI. This move is supposed to bring in more foreign investments. Though these 2 announcements were made yesterday they did not help the market today. It was down by 100 odd points today.
FII's are net sellers overall and are expected to sell even more till the end of 2008. This has to be done to meet their credit obligation in the midst of once in a century financial crisis in the US. RBI has also injected 20000 crore rupees into the markets. This move comes after Australia has reduced interest rates and Bank of Japan has injected money into the markets. The re-introduction of P-notes is a bit too late and too little considering the global turmoil. Indian markets should expect more pain. This would be for Indian stock Market, growth of the economy and the inflation.
Though the measures employed by RBI and SEBI are on expected lines something else should be done at the same time. Something else, which is not in the hands of RBI. Something else, which has to be done by the government. That is leaving the price of the petrol products to the market. Do not subsidize it. Do not give oil bonds to the PSU's. Do not charge extra taxes for the imports.
If the price were left to the market wouldn't we all be cheering now that the barrel price has come down? If it goes up again (not likely) wouldn't everybody be using the public transportation instead of firing all 4 cylinders? I know its election year to make any unpopular reforms but does congress really think they are going to win the next elections? I don't. I don't see a reason for Congress to think otherwise. So why not make the most of it. Remove the oil subsidies.
Given these scenarios do you still think Sensex has reached the bottom? Some analysts say the worst for Indian Stock Market (Sensex) would be 9500. I have a hunch that it would bottom out at 9500. Not that I believe in those analysts. But because there is still a lot of pain left in the markets and 9500-10000 seems like a good level to enter the market. This is the year-end target.