The great fall of China

Jan 11, 2016, 08:59 IST | Arun Kejriwal

The Asian dragon’s fluctuating fortunes, ensures a tough year ahead

The China factor hit global markets on the very first day of trading, and shook them. India, incidentally, was open on January 1 for trading, and gained. Much of those gains were lost on Monday, followed by another meltdown on Thursday, again on account of China. The damage cost the BSESENSEX 4.69 per cent and NIFTY 4.54 per cent. Even the mighty Dow Jones was not spared, and it lost a massive 6.19 per cent.

Weak news from China may make 2016 a tough year for Indian markets, but better domestic earnings could help in being bullish here. Pic/AFP Photo China Out
Weak news from China may make 2016 a tough year for Indian markets, but better domestic earnings could help in being bullish here. Pic/AFP Photo China Out

China, in the last decade, spent billions of dollars in creating infrastructure, which was far ahead of time. The demand for commodities to create the same, saw upheaval in the commodity space and prices rose. Now, the infrastructure created is far ahead of time and at current estimates, may take more than a decade to be consumed. Hence, commodity prices have crashed as the biggest buyer is on the sidelines. China will continue to dominate global markets for a long time to come, and 2016 will be a tough year.

The BSESENSEX lost 1,226.57 points or 4.69 per cent to close at 24,934.33 points, while NIFTY lost 361.85 points or 4.54 per cent to close at 7,601.35 points. The broader markets saw BSE100, BSE200 and BSE500 lose 4.33 per cent, 4.02 per cent and 3.88 per cent respectively. The current flavour saw BSEMIDCAP lose 2.25 per cent and BSESMALLCAP lose 2.42 per cent.

Lows woes
There were no sectoral gainers this week, but BSECONDUR lost the least at 0.09 per cent. The losers were led by BSEAUTO down a staggering 6.99 per cent, followed closely by BSECAPGOOD at 6.89 percent.

BSEBANKEX lost 5.53 per cent. In individual stocks, there were few gainers, and the best performer was Indian Oil, up 3.13 per cent, followed by Reliance Industries at 0.89 per cent. The losers were many and there were big losers with Tata Motors leading the pack down 12 per cent, followed by Bank of Baroda 11.64 per cent, PNB 10.62 per cent, BHEL 10.12 per cent, Maruti 9.04 per cent, and L&T 8.46 per cent.

Surprisingly, Tata Motors reported its best-ever sales in Land Rover and Jaguar, with the United Kingdom purchasing the most number of vehicles. Ever since China has been in some sort of recession, luxury car sales there have slumped significantly. A couple of months ago, a fire at the Tianjin port had destroyed Land Rover and Jaguar cars to add to the slump in China. But clearly, UK sales have taken people by surprise. While Tata Motors fell 12 per cent, shares of Maruti fell over 9 per cent on concerns that the depreciating rupee would make imports of components that much more expensive.

Result season
Results season would begin from the week beginning on Monday, and the market is hoping that a turnaround in the economy would be seen, from the results of the October to December 2015 numbers. Profit margins may have improved as the advantage of cheaper fuel prices and commodity prices kicks in, but the growth in top line or sales may not be there. Even if this emerges as a trend, it would be a good reason to become bullish for the coming quarters.

China effect
How badly can China affect India is a question on everyone’s mind. Indian companies as a whole are more dependent on their business within the country, with 2/3rds falling under this category. Commodity players stand to be affected, as raw material prices have softened and so have finished goods prices. Also, demand has reduced substantially. Metal players would be a good example of this dilemma. Though the government has levied anti-dumping duties on imports, issues remain. Those companies, which are in the export business, stand to gain on account of the depreciating rupee but the demand sluggishness is affecting them negatively. In a nutshell, you win some, you lose some but overall the negativity of China crisis seems to be largely balanced as far as India is concerned.

Tough times
The first three months of 2015 saw the BSESENSEX rise from 27,499 points to a level of just over 30k at 30,024 before settling at 27,957 at the end of March 2015. In just a week’s trade, we have made a new low of below 25k already, and things are looking a little unclear. Similar levels on the NIFTY were a rise from 8282 points to 9119 and then settling at 8491 at the end of March. The current level is at 7601, a far cry from March 2015 numbers.

There are tough times and yet another volatile week ahead, as volumes slowly pick up and uncertainty on China, and what the US could do to mitigate risk. is speculated.

China has a large retail investor base, which follows herd mentality and when the chips are down, there is selling pressure. Also, the flip-flop of the administration in introducing circuit filters for trading in the market and then removing them will hurt sentiment and market movement. Use sharp dips to add on to your portfolio, but it is recommended that any form of overnight trading be currently stopped.

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