Growth concerns regarding China that has already seen the yuan getting devalued twice in August has rattled global financial markets, especially in the Asian region with four major indices - Kospi (Korea), Taiwan, Hang Seng (Hong Kong) and Straits Times Index (Singapore) - trading below their respective recent 52-week lows. Also Read: Rupee at fresh two-year low on sustained capital outflows
Also adding to the weakness on Friday was the drop in Caixin preliminary manufacturing purchasing managers index, a gauge of factory activity in China, for August to 47.1 from 47.8 in July. The possibility of the US Federal Reserve (US Fed) hiking rates in the upcoming meeting in September also weighed on the sentiment. Click here to track global indices
"Contrary to popular perception, the Yuan's depreciation is likely to have been triggered by an attempt to stem capital outflows, which seeks to tighten liquidity and offsets any attempt to reflate the economy. The devaluation is, undoubtedly, deflationary and a potent headwind for countries caught on the wrong side of terms of trade (ToT). While India too is not impervious to the risk, it's the structural impact on trade that's more of a concern," point out Nirav Sheth, Kapil Gupta and Prateek Parekh of Edelweiss in an India Strategy report. Also Read: PSU banks extend fall; Vijaya Bank hits 52-week low
Mirroring the global concerns besides domestic factors, the Indian benchmark indices - the S&P BSE Sensex and the CNX Nifty are trading nearly 10% lower from their peak levels. The CNX Nifty, for instance, has already lost around 9.5% from its peak of 9,119 and is around 530 points, or 6.4%, shy of its 52-week low level of 7,723 and is currently trading at its two-month low.
Despite the global jitters and domestic headwinds, analysts suggest that India remains in a 'sweet spot' and the possibility of the indices testing their 52-week low levels remains low. However, if risk aversion accentuates, it could spill over to India as well, they caution, adding that even then, the downside from here on appears limited.
Explains G. Chokkalingam, Founder & Managing Director, Equinomics Research & Advisory: "The 'India growth story' is still intact. Indian economy is expected to grow faster than many other Asian economies.
Cheap oil will also help and give some cushion to the government to spend money and revive growth. I don't think that the Indian markets will crash to 52-week lows. Having said that, in case the global situation aggravates / deteriorates, the maximum Nifty can fall is another 3% - 4% from the current levels." Also Read: Asian stocks, oil tumble as grim China PMI sparks growth fears
U R Bhat, managing director, Dalton Capital Advisors also suggests that the market dynamics in India are completely different as compared to the other Asian and emerging markets.
"The health of the economy is much better than before. We are probably the economy among the emerging markets where the economic growth potential is perking up. Corporate earnings, too, have bottomed out. Some of the other EMs are facing political instability and currency headwinds and as a result, their markets and economy are in a very bad shape. I don't think that the Indian markets are heading to a 52-week low in a hurry. For the Nifty, breaking the 8,000 level is almost impossible, unless the foreign institutional investors start pulling out in a very big way," he says.