Can Events in China Have Positive Run-off on Indian Stocks?

Welcome back, I hope you all had a good week in the markets and otherwise too. After a few weeks of relative stability and calm, we’ve witnessed a very volatile week. Even the bellwether pharmaceutical index, a haven for most (including me) was tossed around on Tuesday and these are all signs of things to come.  After all, even some bellwether stocks in the pharma index fell 10 per cent, on the back of what seemed like acceptable results. 

The Bank Nifty wasn’t far behind in punishing some big names that declared results. One of the public sector banks gave up nearly 5 per cent on the open on Wednesday and the Bank Nifty index almost seemed like it was going to break the crucial 34,000 support mark. However, the bounce came at 34,115 and the market was able to close at 34,532. Is the correction over? Well, I’m not a betting man and even if I was, this is not one wager I’m willing to make.  You see in the last few days; in fact, weeks I’ve seen even the most seasoned pundits get it so wrong. So, like in the weeks gone by, I continue to say, keep your exposure light until we have stronger signals on the direction the market may take.  If the market does crack, you’ll have the cash to get back in and if the market does show signs that the correction is over and starts to rise, well then you can come back in albeit at a slightly higher price.  Meanwhile, at least you will sleep well at night and not get too stressed wondering about what the Dow Jones is doing at some unearthly hour.    

Coming to the title of today’s article, I can’t help but wonder if the events in China may have a positive run off on Indian stocks. The Chinese Government’s crackdown on Didi and other technology enabled behemoths has roiled Chinese stocks.  In fact, as of Tuesday some of the biggest names had seen their single largest weekly drop going back to 2008. Now that is a crazy erosion of investor wealth.  Look at a share like Didi which debuted at 16US$ under a month ago, went all the way down to 7.16 US$ before recovering since to trade around 9US$.  To add to all of this there have been talks for months in US circles on delisting Chinese stocks from US exchanges, though I must say that seems highly unlikely. However, one of the early lessons that I learnt in the stock market was that the markets don’t fancy uncertainty and all we’ve been seeing with the Chinese companies are a lot of grey areas. Hence the question, can all of this along with the events in Hong Kong actually lead to Foreign Institutional Investors moving more funds to India from Chinese stocks in the future? 

Speaking of FIIs, their selling has been relentless, as of last night they have been net sellers of Rs 18,479 crores in Indian equity. This has been the highest amount dating back all the way to March 2020.  In June, they were sellers for just Rs 26 crore. The white knight of course has been the domestic institutional investors, in July they have been buyers of Rs 13,390 crore in July and Rs 7,043 crore in June.  How long can they keep pumping in money, well they have record inflows coming in from retail investors so let’s not underestimate them either? 

In my article last week, I mentioned we may hit 15,500 on the Nifty this week, and that would have raised some eyebrows. We were trading at the 15,900 levels then and seemed all set to touch 16,000. Well on Wednesday we went all the way down to 15,513 and if the Bank Nifty hadn’t bounced, we could have gone lower. 

My personal plan for the week ahead is to continue to deploy some funds when I get confirmation that something seems oversold, there is always good value available in select stocks and the pharmaceutical correction gives me some opportunities to buy into what I missed earlier.  Do check with your advisers on the names of specific stocks, I am sure they would have drawn up a list of some. I still like cement and metals.  I’m not too hot on automotive and banks, though the latter could see a slight bounce. The small cap index shows uncanny resilience and that is not on my buy list either.  If we do see 15,000 levels in the Nifty in August then I see some money going into more stocks, until then it’s parked away in a safe place far away from all the volatility.  

You all have a great week ahead, stay safe, stay well, watch the volatility from the sidelines, and be ready when the opportunity presents itself. 

 DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.