India’s Markets Plunge. Time To Buy?

India Bloomberg Writes: India Markets Plunge Pressures Singh as Economy Teeters

India’s biggest two-day stock market slide since 2009, surging bond yields and a plunge in the rupee to a record low are pressuring officials for fresh steps to stem capital outflows and support the economy.

The S&P BSE Sensex (SENSEX) Index sank 1.6 percent at the close in Mumbai, extending the 4 percent loss on Aug. 16. The rupee tumbled 2.3 percent against the dollar, touching an all-time low of 63.23. The yield on the government bond due May 2023 rose 34 basis points to 9.24 percent, the highest on a 10-year note since 2008.

Policy Concern

“Our primary concern is that the policy authorities still don’t ‘get it’ –- thinking this is a fairly minor squall which will simmer down relatively quickly with fairly minor actions,” Robert Prior-Wandesforde, an economist at Credit Suisse Group AG in Singapore, wrote in a note. “If this remains the case, then a swift move to 65 against the U.S. dollar is probable, which in turn should help focus minds.”

“Slow growth, high inflation, a high fiscal deficit and high current-account deficit all point to the inescapable conclusion that India’s problems are deep and structural,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. 

Staunch Outflows

While other developing nations are also striving to staunch outflows, the rupee’s 13 percent fall in the past three months is the worst after the about 16 percent drop in Brazil’s real in a basket of 24 emerging markets tracked by Bloomberg.

The question is, does this market plunge in India as well as their currency slide represent a buying opportunity or beginning of a trend for all emerging markets such as SEA?

From an emerging market perspective India finds itself in a unique situation due to its structural problems.  As of right now, other emerging markets are fairing much better. Where it is not unique, is the capital outflows from all emerging markets and subsequent capital inflows into an overpriced US Stock Market.

In simple term, people are looking for safety. They are taking money from emerging markets and pilling it into the US Market under the pretense  that the US Market is somehow safer. However, quite the opposite is the case. The US Market is the most overpriced and by definition the most risky. This time around it is simply lagging behind the emerging markets on the downside.

Bottom line, I wouldn’t touch India or other emerging markets right now. Rarely do markets or stocks make a V shape recovery.  While an argument can be made that emerging markets are undervalued (and some of them are), I believe they are leading the decline and the US Markets is surely to follow them shortly.