Don't suddenly turn off the bourses
market closure on Monday during a trading week already shortened by Republic Day has raised eyebrows over India's business-friendly credentials. India's market capitalisation has overtaken that of Hong Kong, where a slump in valuations is being fed by China's weak economic prospects. In contrast, India offers global investors steadier and higher growth rates over a longer horizon.
Indian equities have run ahead of the economy's potential, with current market capitalisation at a healthy premium to underlying GDP. This, despite a fair selloff by FPIs this month as banks and consumer goods companies reported muted earnings.
Indian equities still offer safe harbour to global capital roiled by prospects of sticky inflation in the West and a deflating Chinese economy. Central banks in advanced economies face a choice of engineering a soft landing that could keep inflation above target levels for longer.
China, on its part, is putting off a decision to stimulate the economy to prop up domestic consumption. Either scenario raises volatility in international financial flows that affects Indian markets despite official estimates that the economy is gaining momentum. Expectations of policy continuity after elections and revival of private investment provide investors cushion against softening consumption.
However, short-term volatility is likely to persist till valuations are better anchored.
Trading interruption at short notice is an avoidable eventuality at this juncture, although fundamentals remain unaffected. It affects algo trading in particular, where volumes are climbing. The optics of declaring a trading holiday 48 hours in advance are unfortunate, however extenuating the circumstances.
