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Stock market crash a short-lived aberration: SBI

27 Aug 2015

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India's stock market crash this week is an "aberration" and markets will see a correction based on upcoming macro numbers - GDP and consumer price index inflation - which are likely to be positive, SBI Research said in a note today.

An SBI Research analysis of market crashes (both domestic and global) since 1992 reveals that in cases where domestic macro-cues were involved, the markets stayed at a much lower level when compared with only external factors.

"Given that the current crash is driven more by the latter (external factors), we are thus convinced that the recent crash is an aberration and markets will correct based on upcoming macro numbers which will be positive," the note said.

The first quarter GDP growth data is likely to be a big positive surprise, and so will be the August CPI numbers, it said.

The official data on growth in gross domestic product (GDP) in April-June quarter will be released on 31 August.

Global economy has experienced huge financial volatility with bourses across the board witnessing a slaughter in the last few days. There has been a huge sell-off since August 17.

The BSE Sensex has dropped over 2,300 points since August 17 and on August 24, the markets witnessed the worst-ever carnage in stock market, with Sensex crashing by 1,624.51 points as rout in Chinese stocks triggered a global sell-off.

"Even though the Sensex has suffered a decline and the currency has breached Rs 66 per dollar, the data on equity premia and the comfortable foreign reserves ($354 billion as on August 14) show that the macro fundamentals are still in a significantly better shape than they were previously," the report said.

The index is currently hovering around 26,000 levels.

The report further noted that the Yuan devaluation was a blessing in disguise for emerging markets.

"With the Chinese economy undergoing structural adjustment, the devaluation of Yuan was natural.

Though this has caused financial turbulence, this might prove to be a blessing in disguise for India in the context of overvalued real effective exchange rate," it noted.

Moreover, the weaker Yuan would help make China's exports more competitive, which is likely to help boost the nation's economy and eventually prompt a recovery in economies from where China imports.

"These macroeconomic mechanics of growth constitutes a certain degree of growth optimism for China, and the world," it added.

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