Sensex is on slippery slope

MUMBAI: At 471 points, it wasn’t the worst fall of the Sensex. But it felt like one. Bears hijacked the indices as soon as trading began on Monday, reinforcing a dominance that began last month. Since February 8, when the Sensex peaked, investor wealth declined by Rs5,64,344 crore. That’s 16% more than the government’s projected revenue receipts for next year.

What gives? There are three major concerns. One is the prospect of a growth slowdown next year. Two, with inflation far from being tamed, the worry is that the RBI will have to keep raising interest rates for some more time, making an economic slowdown a certainty.

Three, the world’s investors are becoming more risk-averse. Since February 8, the Indian market has lost the most in value at 15.27%.

So, what should investors be doing now – apart from praying? The advice is to sit tight if you have already invested for the long term.

“Past experience shows that whenever the market corrects by such an extent, it bounces back to reasonable levels, although it is difficult to say when,” said Narayan SA, managing director, Kotak Mutual Funds. “Overall, corporate performance is good. In three to six months, valuations will come down to reasonable levels as corporations come out with earnings in subsequent quarters.”

Foreign institutional investors have become extremely negative on Asian stocks of late, though the Sensex’s 15.27% drop is mirrored nowhere else in the region. “We are much more integrated into the global system now,” said Sanjay Sinha, head of equity, SBI Mutual Fund. Between February 26 and yesterday, the FIIs have pulled out investments worth a net Rs3,500 crore.

Since no one can predict short-term market trends, however, caution is called for.