Indian benchmark indices tanked over 2.5% on Monday, tracking weak global cues. BSE Sensex crashed over 1,500 points as it slipped below the 53,000 level and the Nifty 50 shed 400 points to slide below 15,750. Equity investors became poorer by over Rs 5.47 lakh crore in early trade. In line with weak trend in equities, the market capitalisation of BSE-listed firms eroded by Rs 5.47 lakh crore to Rs 246 lakh crore. “Weakness was seen in the equity market across the globe, led by higher-than-expected inflation data in the US market, leading to a rise in the bond yields. US bond yields are now trading above 3.15% levels, indicating the aggressive rate hike expectation by the US FED in the upcoming FOMC meeting, scheduled this week,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.
Uncertainty often leads to correction and once it subsides, the markets normalize
According to Santosh Meena, Head of Research, Swastika Investmart, the markets expect Fed to become more aggressive to tame the entrenched inflation; this will lead to huge outflows of FIIs and FPIs money and further depreciation of Rupee. “To be honest, today’s fall is nothing new; it’s just a reality check as the majority of stock prices had moved far away from their fundamentals or intrinsic values. Markets often need trigger events to comply with the universal law of mean reversion and the Russia-Ukraine War is that event this time. Markets often get confused between risk and uncertainty, risk is the permanent loss of capital whereas uncertainty means situations involving imperfect or unknown information. Uncertainty often leads to correction and once it subsides, the markets normalize,” Meena said.
What should investors do?
Lap-up quality stocks: “We recommend investors to see the big picture, it is true that inflation is going to stay for a while and affect the profits of corporate India, but in the medium to long term, there are many companies with good fundamentals, robust financials, and competitive advantages that are going to perform well. Further, India is better placed than its peers with respect to growth factors and the ability to fight the current inflation. Thus, the current uncertain times are best to lap up such quality stocks and investors can use the buy on dips strategy, however, in the near term, the markets are going to be volatile,” said Santosh Meena, Head of Research, Swastika Investmart.
Hold on to well-performing stocks: “After high inflation markets are fearing the US Fed could take unexpected policy measures in order to control inflation and which may impact overall economic health. Investors should hold on to their stocks which are performing and wait for further clarity on US Fed rate hike and its glide path for further action. Though Valuations have come down but still clarity on interest rate move is needed in the short term as these have potential to impact earnings growth,” said Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers.
Use to build long-term positions: “In the domestic market, India’s VIX rose by 11% led by weaker global cues, a stronger dollar, and the expectation of Hawkish commentary by the US FED. FII behavior is likely to be volatile this week, and a clear trend is likely to emerge only after the volatility settles at a lower level for a longer time. Investors should focus on the asset allocation and use this volatility in a calibrated manner to build long-term positions in quality companies, where the earnings visibility is high,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.
Deploy cash in valued stocks: “Choppy movement in the broader market is expected and it may remain within a range of 15700-17200; one can selectively deploy the cash in valued stocks for long term only or not do anything for a few days or weeks. The near-term market trend is weak and a breakout below 15700 can drag-down to a level of 15250 in the near term,” said Akhilesh Jat, Category Manager – Equity Research.
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