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3 India Stock Market Giants to Avoid

India stock market - 3 India Stock Market Giants to Avoid

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Is it good enough? That’s the question that will be hanging over Wall Street despite a rally in the broad markets at the end of September.

3 India Stock Market Giants to Avoid
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Ever since the broad market correction in August, the response by the bulls has hardly been inspiring. Week-over-week the index is up three basis points, while the S&P dropped more than 2% for the whole of September.

The global investment community, particularly the emerging markets, have even more cause for concern. The India stock market — which in the past provided massive returns for growth speculators — has become a sad shell of its former self.

Although the India stock market started off the new year with a promising 5% gain for January, the sector quickly tumbled as popular Indian stocks hit a wave of sell orders. The consequence? Year-to-date, India’s market is down more than 6%.

The bearishness among Indian stocks can’t take the shine off of the country’s chief executive, Prime Minister Narendra Modi. Two weeks ago, Pew Research Center revealed that 87% of Indians surveyed for a political poll have a positive view of Modi. This overwhelming support is buttressed by a 70% improvement among Indians having trust in their government’s policy, up to a total rating of 90%.

But in the world of Wall Street, money talks and something else walks. Investors want to see rewards for their risk, and the much-trumpeted Modinomics policy of sweeping reform has yet to culminate. This puts a serious cloud on the Indian stock market and its future potential.

Here are three Indian stocks that investors should be keen on avoiding.

India Stock Market Giant to Avoid: iPath MSCI India ETN (INP)

INP-ETN, technical chart
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Source: Source: JYE Financial, unless otherwise indicated

Although the exchange-traded note had a banner year in 2014 — moving up nearly 28% — the INP ETN has failed to rekindle the magic for 2015, where it sits at a YTD loss of more than 6%.

The major problem is that the INP ETN inarguably tracks a developing nation, and that will inevitably lead to some unwanted volatility. India’s sovereign debt is rated one grade above speculative by Standard and Poor’s and would likely only see an improvement should the country get its fiscal deficit situation in order. That would be problematic considering that India’s fiscal deficit has widened significantly post-2008, and the decision by their central bank to slash interest rates in an effort to jump-start its economy would only exacerbate matters.

Technically, the INP ETN has been stuck in a consolidation pattern since late August, after the Dow Jones Industrial Average went into a tailspin. More ominously, the INP ETN suffered its own death cross in late May of this year when its 50-day moving average dropped beneath its 200-day MA. Currently, the 50-day MA is acting as a resistance barrier, one that the INP ETN bulls have yet to breach.

It would be a tall order to ask anybody to place significant risk capital toward the INP ETN — it’s still at a relatively lofty valuation, yet the technical picture is highly vulnerable to further selling pressure.

India Stock Market Giant to Avoid: ICICI Bank (IBN)

IBN stock, technical chart
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Source: Source: JYE Financial, unless otherwise indicated

In 2014, IBN stock jumped an astounding 63% after recovering from a very poor 2013, in which shares dropped 17%. However, it’s back to the dumpster again, with IBN stock shedding more than 24% on a YTD-basis.

Some of the biggest names on Wall Street apparently don’t see IBN stock as a glass half empty, with the investment analysis division of Goldman Sachs and Standpoint Research both giving the Indian bank a “buy” rating.

In addition, major hedge fund player Fisher Asset Management increased its exposure to IBN stock to the tune of 10.26 million shares, which is valued at nearly $107 million.

While the uber-rich can afford to lose some money, most investors would prefer not to. Unfortunately, IBN stock is a classic bull trap waiting to ensnare a hopeful contrarian.

Essentially, there are two critical problems ICICI Bank shares. First, IBN stock has charted a series of lower highs and lower lows since peaking in late January of this year. Second, IBN stock is currently in a negatively slanted consolidation pattern, after free falling during the broad market correction in August. This is an uncharacteristic acquiescence for IBN stock, which in the past five years has jumped sharply upward after bouts of bearishness.

Although it’s tempting to follow the advice of Wall Street’s movers-and-shakers, sometimes, you have to use simple common sense. Neither the underlying India stock market, nor IBN stock’s own technical dynamics, offer any confidence that ICICI Bank will turn the ship around any time soon.

India Stock Market Giant to Avoid: Tata Motors (TTM)

TTM stock, technical chart
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Source: Source: JYE Financial, unless otherwise indicated

Unfortunately for India’s investors, the same cannot be said for Tata Motors (TTM) — the country’s largest automaker with a growing international portfolio primarily servicing emerging markets.

On a YTD-basis, TTM stock absorbed a near-50% haircut, one that effectively canceled out the gains made over the past four years.

Lower sales were the main culprit for TTM stock’s earnings miss for the first quarter of fiscal year 2016, confirming wide-ranging weakness within the automaker’s primary market — a situation that the Indian government doesn’t see improving quickly based on its rapid interest rate cut. The earnings loss was somewhat mitigated by rising revenues in its commercial vehicle division, but partial success there won’t be able to carry TTM stock.

The bottom line for investors was summed up neatly by TheStreet — it took five years for TTM stock to hit a valuation of $50 per share, and it took less than a year to lose more than half of it.

The volatility is so bad that there’s really no point in doing formal technical analysis. Selling-pressure runs unabated, giving absolutely no indication that the bears will let up anytime soon. Accordingly, we can easily see a situation where TTM stock drops below the $20 psychological level, perhaps retesting the lows of 2011.

There’s no point betting on a dead horse. Unless there is dramatic improvement in the global economy, look for things to get worse for TTM stock before it finally hits a bottom.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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