More Turbulence Likely on Street as Negatives Rise

Political deadlock, worrying economic indicators, slowing inflows hit sentiment

Indian stocks are headed for more turbulence as political deadlock, a surging fiscal deficit, slowing growth and scant foreign inflows hit investor sentiment in a market that is already Asia's worst performing this year, say ace investors Rakesh Jhunjhunwala, Raamdeo Agrawal and Madhusudan Kela. 

The Nifty, down 20% since January, remains at the mercy of bears and the falling exchange rate in the medium term, although the sheer resilience of the Indian economy coupled with growing purchasing power makes this an opportunity to buy quality blue chips and some beaten-down midcaps, they added. 
"Markets are in a difficult stage, so we could be in a range for a long period of time. It could be for six months or one year," billionaire Jhunjhunwala told a capacity crowd at an event telecast exclusively on ET NOW, the paper's financial channel. "I am confident, and maybe 5,200 could be a difficult point to penetrate, but 4,600-4,700 is also going to be a difficult point to break and don't forget that a lot of pessimism is getting priced in." 
The Nifty has dipped 24% from its previous high in November 2010 as the government held back crucial decisions on further opening up retail and insurance sectors to foreigners. Both moves have been opposed by the main Opposition party, the BJP. The poor relationship between the parties has meant that Parliament is often paralysed making it difficult to pass economic and other legislation. Meanwhile, the rupee, also Asia's worst-performing currency this year, has plunged 14% so far, recording its worst annual fall since 1992, the year after India opened up its economy. 
Equities have also suffered as the Reserve Bank of India has raised interest rates 13 times since early 2010 to rein inflation, which is the highest among BRIC nations. 
Jhunjhunwala, 51, remains optimistic that the government may get its act together, especially on the reforms agenda, and that India's relatively higher return on capital and equity will ultimately attract investors back into stocks. However, getting sustained overseas and domestic inflows back into Dalal Street will require gumption in New Delhi. "We want labour reforms, we want GST, we want DTC, we want FDI in more areas," he said at an event discussing Motilal Oswal's 16th Wealth Creation Study.