Stocks & rupee: Will somebody tame the bear?

India is witnessing a fall all around, from the stock market to currency value. The only thing showing some strength in the market is inflation. Even the theory of relativity fails when it comes to pulling down inflation in India.

The crude oil price has recently shown some weakness as the price of Brent has come down, but the depreciating rupee has squared off the benefit of any price easing. With biting inflation, the purchasing power of investors is diminishing. The falling stock market seems expensive to the investors now. This is a bizarre situation for the stock investors as they can't stay in cash because inflation will eat the idle money, and if they invest it then the risk of loss is very high.

Due to funding problem in euro zone, both external commercial borrowing by Indian corporate and trade credit fell significantly in last few months. While this deterioration of the capital account shows the global funding problems, it is being driven even more by investor nervousness about the policy threat in India.

The happenings in the global financial world have shaken the Indian stock market. Foreign investors are parking their money in dollars and avoiding positions in any other financial instrument to keep the fund safe and intact.

This has resulted in a strong dollar against other currencies. The global slowdown has already struck hard on the Indian export companies due to slack international demand. Even, crude prices have not settled down so much that these could provide some relief from the continuous dollar outgo.

To make the things worse, India has not shown any step forward to fight back the current crisis in anyway. The policy paralysis in Indian economy is hindering reform and making it difficult to solve the issue in an effective way. Prices of all the imported goods are set to rise with a fall in the value of the rupee against the dollar.

Electronic goods, foreign travelling, capital goods, and imported car will cost more with depreciated money. The stocks of companies which largely depend on import of capital goods are at risk of finding new bottom. Further, companies which have huge foreign-currency debt will now need to pay more because of depreciated rupee.

The currency problem, global economic weakness and the crude crisis are issues, which need some time to get resolved. Equity investors who are waiting for stepping into the market to do some bottom fishing should wait for at least a European debacle to take some direction. The Indian economy is carefully waiting for a good monsoon in coming months. A decent monsoon can prove to be a trend changer.

The investors should enter the market with long term purview and use funds smartly. The current scenario suggests that the market still need to find the bottom. Nifty has already seen a low below 4800 levels during day trade. A new low in coming days will further bring negative sentiment in the market.

Bears are getting stronger with a series of falls in the last few weeks. In such a situation, small investors should stay liquid while others can use the steep fall as an opportunity to pick fundamentally strong shares at a bargain price. Investors should not use complete fund all at once; it is better to split it in four-five parts to buy in every fall.