The bulls of the stock market, including Rakesh Jhunjhunwala, are putting on a brave face, despite a sharp plunge of over 1,000 points in the benchmark Sensex amid turbulent conditions over the past two days.
Commenting on the volatile market conditions and dramatic fall of the Sensex, Jhunjhunwala said: “Nothing has changed” as the Indian market was “deep-rooted.”
The country is poised to soon achieve a double-digit economic growth along with an impressive corporate profit growth, which would further drive the bourses, the stock whizkid said.
“I don’t have any rocket science but my bullishness stems from my feeling that India’s economic growth will be in double digits,” he remarked.
“Corporate profits are likely to be up by 18-20 per cent on an average while the present GDP growth of nearly nine per cent will increase to double digits,” Jhunjhunwala said. Although the Indian market had a slow growth, it was deep-rooted, he said.
Some other market players said that the sharp plunge in afternoon trade today was mostly due to profit booking at higher levels and the 717-point plunge has now given new entry levels that would be tapped well by investors.
However, this bravado is not being shared by all, especially in the backdrop of the recent proposals to curb investment made through instruments like participatory notes by the hedge funds.
“The proposed measures can have a very significant negative impact near-term on foreign inflows into Indian equities,” Citigroup Global Market analyst Ratnesh Kumar said in a new report.
The report by Citigroup’s brokerage division said that foreign inflows into India would be negatively impacted in the next 3-6 months if Sebi’s proposals on curbing Participatory Notes (PNs) are implemented in the current form.
“There has been a significant rise in the share of P notes in overall FII flows into Indian equities,” Kumar said in the report.
P-Notes are mostly unsed by hedge funds, a fast-growing asset class globally in recent years and lack of any new issuance of Offshore Derivative Instruments (ODIs) with underlying derivatives would take away hedging options for exposures in the cash market. This could be a deterrent for new hedge fund inflows, Citigroup said.
Finance Minister P Chidambaram on Wednesday said that the proposals with or without some modifications would be made a regulation.
Local analysts also predicted that trading in the next few days was likely to see selling pressure and market oscillating violently both on speculation about the fate of PNs, an instrument through which hedge funds have significant presence in virtually all the blue-chip companies.
“Today’s fall was due to heavy selling by foreign funds. The fall is mainly due to reshuffling, covering of liquid positions and investors taking a long-term call on the market, Premium Investments’ S P Tulsian said.