Sensex slides further in a classic bear market pattern in the middle of uncontrolled inflation
Partha Chatterjee
May 26, 2008

Indian stock market is sliding slowly down again. After a brief period of recovery it is ready to retest the recent lows. The Sensex opened with a negative gap of 182 points at 16,468 on global weakness. The index tumble to a low of 16,300 - down 349 points from its previous close.

What was typical of a solid bear market is that of receding volume and pronounced weakness in market breadth. Out of 2,758 stocks traded, 667 advanced, 2,043 declined and 48 were unchanged.

To what level is Sensex headed? That is the biggest question in the main streets of New Delhi and the Dalal Street of Mumbai. Inflation and a stagnating growth is the worst combination for stocks. India faces hyperinflation and somewhat slowing growth. The growth is not well distributed in the economy. The industrialists and outsourcing king pins are doing very well. The farmers, the common people are helpless.

Fiscal and monetary mismanagement has plunged India into the spiral of hyperinflation that eventually leads to a prolonged recession if not depression.

The stock market is looking ahead. The foreign Direct Deposits that fueled Indian prosperity are reversing in its overall flow pattern. Indian politicians in power at this time miscalculated the impact of rising crude oil prices. The real shocker to the Indian economy is its way as Government finally allows sharp price increase of petroleum products to save state owned and run oil and gas companies. That will spread a shock wave in the Indian economy.

Common people already are reeling from hyperinflation in food products resulting from diversion of grains to produce bio-petroleum products. As India allows price hikes in petroleum products, the inflation will reach 30 to 40% per year from the current 7 to 10% level.

Sensex has the potential to test 2,000 level. It was at that level not many years back. The real problem will be to hold rupees at this level. US and other western nations will not allow India to devalue its currency like that in sixties and seventies. India is presumed to a ‘almost developed’ nation like China. The world looks for appreciation of Indian currency. But Indian economic fundamentals point to devastating down fall of Indian Rupees. The net result can be a nasty meltdown of Indian economy.

Sensex slides further in a classic bear market pattern in the middle of uncontrolled inflation
Partha Chatterjee
What was typical of a solid bear market is that of receding volume and pronounced weakness in market breadth. Out of 2,758 stocks traded, 667 advanced, 2,043 declined and 48 were unchanged.
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