Black Monday – An Analysis

After the Chinese stock market suffered its biggest one day loss since 2007, plummeting 8.5%, 24th August 2015 saw a bloodbath in the stock market as the Indian Investor Wealth crashed by over Rs. 7 Lakh Crore.

This is the result of a meltdown in the Chinese economy following the devaluation of the Yuan

It is the biggest ever single day loss experienced in Indian Stock Market History.

The Sensex lost over 1700 points and Indian Rupee fell to Rs. 66.7 to one US dollar, the lowest in the past two years.

Black Monday – The biggest ever single day loss in Indian Stock Market

Rs. 7 Lakh Crore Wiped off from Indian Investors’ Wealth

Great Fall of China – A background Check China’s benchmark Shanghai Composite Index fell 8.5% to 3,209.91 at close on Monday, wiping

out all its gains in 2015 as a result, a trillion got wiped off China’s economy The sharpest fall in China’s stocks since 2007 came despite Beijing’s latest attempt to support

the equity market, an announcement on Sunday that it would allow pension funds to invest 30% of their total net assets of over $ 547 billion in stocks which is in sharp contrast to India

In the background of the current turmoil lies the unusual rise in Chinese markets for about a year until June, as investors, most of them ordinary Chinese, poured large sums of money into stocks, even though both growth and corporate profits were weak leading to classic bubble situation.

The Chinese steel industry grew 11 times during the last 20 years to 1.2 bn tons. Neither China, nor the world can use that much steel and the scaffold of the manufacturing sector would also collapse soon

China's markets had gone up rapidly - by almost 300% in the past one year - and it took just a few weeks to undo that rise.

Chinese Stock Market Crash and its Global Effect  The FTSE 100 (London) fell below the 6,000 mark

for the first time since 2013, and Japan's Nikkei, the German DAX and France's CAC all followed suit in recording heavy losses.

The crash could lead to much lower growth and inflation in the UK which, in turn, could potentially delay the first rate hike until 2017 or beyond

The decision on the US interest rate rise could be on hold.

Economies that count China as a first or second largest export partner include Australia, New Zealand, Brazil, Indonesia, Malaysia and South Africa are also expected to face the economic glitch

The Downfall was certainly not unprecedented

What is India’s position amid crisis?  Being another commodity guzzler, this economic

scenario could be India’s best opportunity to become an investment destination.

The challenge lies in increasing the country’s demand which is much below its potential and thereby triggering the economic growth.

When it comes to China, it’s future depends largely on it’s shoppers not its exporters. Being a self sufficient country, China is not in a crisis yet which means India has both opportunities and challenges though it is reasonably immune to the present economic situation

Challenges Opportunities

Raghuram Rajan’s View on Indian Economic Climate

Our macroeconomic factors are under control as the economy is in much better position relative to many other economies.

Stating that low current account deficit, fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, and very sizeable base of forex reserves make our economy better-placed relative to many other countries, says Raghuram Rajan

On Yuan devaluation, Rajan said the Chinese move is the result of the extraordinary monetary policies that been going on across the world.  Stable Economic Condition

Forex  Reserve

Fiscal Deficit 

Discipline

Low Current Account Deficit

Call To Action

This is a very good time to scale up one’s exposure to equity investments

If you have not made any equity investments before, this is the best period to make a start.

If you have exposure to only one or two asset classes like real estate and gold, this is a good time to diversify the portfolio.

If you have existing investments that are not being monitored, this is a good time to consolidate existing investments, and align it to capture the evolving markets.

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