INDIAN ECONOMY & STOCK MARKET : ON THE EDGE

The Indian Growth story was a result if it's growth of services sector mainly riding on the English speaking BPO business and the coding savvy IT industry which first made it's mark during the 2000K issue and from there it grew by 20 to 25 % .

However the same has now started getting saturated and in production of goods India still needs to make large strides to match the large standardized and highly productive and cost efficient capacities of China.

With the Trump effect and the IT industry shedding it's excess baggage ( read around 56000 to 1 Lac employees ) it might have a larger impact than we can imagine.

With the Indian banks already under pressure due to NPAs from corporate , the Housing , Car and personal loans NPAs may also see a rise if the job market does not improves .

This would put pressure on the banking system which would squeeze the credit availability and also increase the lending rate . This will have an impact on all the infra companies needing huge debts which depend on credit . If their credit is blocked their vendors like Steel , cement and construction contractors would not get paid resulting into the employees not getting paid and the vendors of these companies getting delayed payments . So this might be a vicious cycle and only government spending through deficit financing will increase inflation which is going to reduce the savings and thereby reduce the availability of funds to banks even further .

So net net my take is that  in times to come Indian economy is going to face challenging times and if there is any war like situation or a bad monsoon situation will get worsened .

Also the way various state governments are pleasing the farmers by making their full loan waivers , it is a very dangerous situation both for economy as well as food security situation.

Now let us look at the NSE 50 and the BSE Sensex historic charts

BSE CHART

The P/E Ratio for the BSE Sensex Stocks is trading at 23 and in the past whenever the sensex P/E has touched these levels it has shown a major negative trend from there .

NSE CHART

The story is similar for NSE where the NSE 50 P/E is at a all time high of 25 and in the past there has been a major downward correction from these levels.

So both from fundamental as well as the trend analysis it looks like the market would follow the economy which might have a dip in the near future.

My estimate is a correction of at least 100 to 1500 points in NSE over a period of next one year.