Will Indian markets bounce back?

Some time during the market crash of 1929, which led to the Great Depression, Groucho Marx said, “Some people I know lost millions. I was luckier, I lost two hundred and forty thousand dollars. I would have lost more, but that was all the money I had.” Thousands of Indian traders trapped in this bear market will share Groucho’s sentiments. Many have left the market, bruised by a 4,500-point fall in the benchmark Sensex from January to December. People, mostly day traders, who bet with money lent by their brokers, have lost the most, struggling in many cases to pay back the loans in a falling market. And now, one of the biggest India bulls, CLSA’s Chris Wood, has turned bearish. He calls last Friday’s flash crash after the RBI held rates unchanged, ‘ominous’. Wood is nervous about many things: the government’s paralysis, infighting among ministers, its large social programmes, persistent inflation and the rupee’s weakness. He also frets that farmers might stop paying back loans in anticipation of a rural loan waiver of the kind we saw in 2008.

Many of Wood’s fears are rational, but on Wednesday, the markets surprised everyone, including doomsayers, by snapping back. Both the major indices gained more than 3% and the rupee also strengthened. The Sensex rose over 500 points in a single trading session. So, what changed? Overnight, the government hasn’t become more efficient or decisive, though a lot of legislative work is being done in the winter session of Parliament. All parties have something different to say on the Lokpal and Anna will fast, come what may. None of this explains the market’s bounce back. What could, is a renewed movement of overseas capital into markets on the back of some cheer in the US. This year-end could actually signal a happy new year ahead.