WHERE INDIAN STOCK MARKET IS HEADING

When I took a hiatus from this blog, the Indian market moved like a yo-yo. The whole world financial market was in a doldrums. Panic selling out weighted the actual problem. The reason, as aptly put up by George Wehrfritz in Newsweek is - "The force that tethers all of these debacles to the growing number of Americans who can not pay their mortgages is one that increasingly sets the cadence for global commerce: risk." Now-a-days the credit risks are spread as tradable product to the willing customers. This dispersion has a cascading effect to the whole world financial market.

 

Luckily the American Central Bankers pumped liquidity (a staggering $ 325 billion) into the system and the Fed raised hopes for a rate hike. The news simply pumped the much needed air into the Indian bubble. The stock market rallied for continuous eight days. It now seems that the market tank was the much needed correction. 

 

But there are words of caution flying around like – "fourth generation financial crisis", "US economy knocked into a serious recession", "crisis beyond today's bad debt", "cusp of a system changing crash" etc. But issues like how the plunging stock price will affect the large economies vis-à-vis emerging markets are not still very clear.

 

It seems the American market is certainly not over the hill. The ensuing crisis in Asian market raises question about the ability of Asian markets to stands of its own. Rise of China as manufacturing hub of the world and India as the global service provider was the answer to international financial reorientation. But both the economies are still heavily dependent on North American and European markets and will be so for at least for some time to come.

 

The complex web of international financial market is sure to leave some mark on Indian stock market. The use of complex securities as buffer to global turbulence leaves a question mark on the efficacy of the present financial system (here I means the Banks). There will be a contradiction between the old guards and the new evolving financial frameworks. It is better if the old guards viz. the financial institutions understands and prepare themselves for new financial order (sooner the better) they will survive and prosper, otherwise they will be doomed and with them the helpless and poorly informed small investors.

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