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Bloodbath in Indian markets

Kashmir Times. Dated: 6/26/2016 11:46:45 PM

It is wrong to say that slowdown in international economy and developments in Europe will not have adverse impact on the Indian stock market

The sudden crash in the Indian stock market in a major way to the extent of 10 percent on a single day on June 24, 2016 after Brexit polls results were announced has shown that Indian economy and markets are not insulated from the impact of slowdown and meltdown in any one country. It is wrong to say that the developments in United Kingdom of Britain after its exit referendum will not affect any market in any continent or the international markets. The single day crash is attributed to selling pressure of Brexit due to sudden devaluation of its currency Pound Sterling, which has been caused due to political uncertainty, which has also not remained insulated from international markets in various parts of the world. The sudden devaluation up to 30 percent on a single day has been prompted in the British currency devaluation due to pressure from lack of openings in the export oriented products from its own industrial houses during the past few years. The fears of some of the experts that a meltdown in British economy can have an adverse impact on the global economy which has been witnessing a slowdown during the past more than a decade have been proved right. This has further impacted the European markets to large extent after the failure of the economy of some member-states which required a bailout from the European Union through advancing of loans which is almost three times more than the total GDP of that country. Though reforms have been suggested in the UK, but there has been lot of opposition from the people against the austerity measures initiated by the present government. The British government has been forced to quit paving way for calls and petitions for a fresh referendum later this year, which can again continue the political uncertainty in the EU, which has asked the UK to speed up its separation. If a small country in EU can have an impact on Indian economy, how can other countries closely connected in the EU can remain isolated from the overall effect of the meltdown anywhere in the world.
Since the economies of most of the nations have become inter-dependent, the assertion of Indian Finance Minister that this is a temporary phase and Indian market can overcome the losses suffered by the bourses in the near future is not acceptable. His contention that the foreign exchange reserves are also sufficient to meet the challenges in the market posed by UK's exit from the EU does not hold good for the Indian markets and the economy. Moreover, Indian exports have also suffered on account of meltdown in some of the EU members states and its impact on devaluation of Indian currency has been felt to a large extent. Now the question arises that assessment of some of the financial experts, who predicted a meltdown in some the EU nations and slowdown in US economy besides apprehensions of the UK's exit from EU, has been correct on the international scenario, how come their predictions on current slowdown cannot be proved right. Now that the fears are that the second largest economy of the world is weak and not strong enough as considered to be, the fate of Indian economy can be very well imagined. The sale of British Bonds and Securities can have an impact on Indian markets because decline in Indian Rupee has been continuous and worst in less than two years and the losses on stocks to the extent of never seen before except 2008. Eight years back, the losses of the investors were considered to be more than 3 trillion dollars, now this loss would be estimated to higher than the previous meltdown effect. As such the Indian investors have suffered 1.5 trillion dollars in the first two days after the Brexit results. Now the worry of the investors is that the rupee has tumbled to over 2-year low at 67.50 against the dollar early last week and then, the rupee has recovered marginally but currency watchers don't see it recovering so soon. This is going to have international implications because of lack of support from the Financial Institutional Investors (FIIs) and decline cannot be arrested through market interventions from the Reserve Bank of India (RBI) at this stage.