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Nifty, Sensex fall 2% on weak global cues, inflation fears, persistent FII selling; what should investors do?

Indian equity markets declined 2% on Thursday tracking losses in global markets. Central bank minutes released on Wednesday also spooked investors and flamed interest rate hike concerns. Benchmark BSE Sensex sank around 1,100 points to intraday low of 52,996, and the NSE Nifty 50 tanked over 300 points to 15,903.

share market, market crash, bse sensex, nse nifty 50
The India VIX surged 9 per cent to 24 levels indicating high nervousness amid investors.

Indian equity markets declined 2% on Thursday tracking losses in global markets. Central bank minutes released on Wednesday also spooked investors and flamed interest rate hike concerns. Benchmark BSE Sensex sank around 1,100 points to intraday low of 52,996, and the NSE Nifty 50 tanked over 300 points to 15,903. The broader markets were also weak in line with frontline indices. The India VIX surged 9% to 24 levels indicating high nervousness amid investors. Markets are likely to remain highly volatile in upcoming weeks, said analysts, warning of tough times for the Indian economy going ahead. Investors must avoid taking aggressive positions, but use this opportunity to lap up quality stocks, they added.

What’s dragging markets today?

Naveen Kulkarni, Chief Investment Officer, Axis Securities said, “Growth momentum in the global economy is slowing down due to liquidity tightening by Central Banks. Russia – Ukraine conflict is also not showing any signs of easing with newer categories of weapons introduced in the conflict, which will keep Energy and Food prices high. Both these variables point to a stagflation kind of scenario globally, which can lead to discretionary spending going down,”

“This is fueling greater volatility in global equity markets, including in India. We expect markets to remain volatile in the near term but expect better market conditions in the second half of the financial year once markets price in the impact of global slowdown and higher rates” Kulkarni added.

Rate hike, inflationary woes fuel sell-off

According to Parth Nyati, Founder, Tradingo, global inflation has become the biggest spoilsport and has derailed the economic growth recovery globally. “The post-pandemic inflation which was once believed to be transient has now become an entrenched one. Inflation rates are at a 40-year high in countries like the UK, and USA. The American retail majors Walmart and Target have disappointed on the Q1 earnings front, indicating that even large companies are unable to cope with the supply chain and inflationary woes. This has created a huge sell-off and meltdown in the majority of the stock markets globally. India’s WPI inflation jumped to a 17-year high, this will force RBI to further hike interest rates. All these factors have collectively led to a 2% fall in Nifty and Sensex,” he said. 

Increasing dollar index, Ukraine conflict adding to selling pressure

“To combat rising inflation, the US Fed, Bank of England, and RBI all raised their benchmark rates by 50 basis points, 25 basis points, and 40 basis points, respectively. These factors, together with the increasing dollar index and the ongoing conflict in Ukraine, have altered international dynamics and increased selling pressure globally. As a result, market direction is highly unpredictable and uncertain,” said Mohit Nigam, Head – PMS, Hem Securities.

Where is Nifty headed?

Akhilesh Jat, Analyst at CapitalVia Global Research, said, “Indian equity indices tanked nearly 2% in morning trade ahead of the rupee depreciating, continuous selling from FII and US Fed’s tightening policy. On the downside, 15700 will act as a support level. If it breaks this level then, 15500 will be the next support. Nasdaq has declined more than 28% from its all-time high, while Nifty has declined nearly 15% and we have seen the biggest daily drop in the S&P 500 Index in almost two years.”

What should investors do?

Avoid taking new positions: “Currently the market is very volatile and VIX is also very which is pointing towards a huge amount of volatility. So at the current juncture, one should avoid making new positions,” said Akhilesh Jat, Analyst at CapitalVia Global Research.

Lap up quality shares: “We believe that investors must be greedy when others are fearful and use this opportunity to lap up quality shares with good growth prospects and reasonable valuations,” said Parth Nyati, Founder, Tradingo.

No to aggressive positions: “In these uncertain times, investors should remain calm and avoid taking aggressive positions. A sensible investment approach would be to buy high-quality equities in limited quantities on falls, with a bias for value over growth,” said Mohit Nigam, Head – PMS, Hem Securities.

PSU Banks, Oil refiners among good bets: “Sectors which we like are good quality private sector banks, Oil Refiners and exploration companies, Agri linked companies including tractor manufacturers, Hospitality, Film Exhibitors and Hospitals,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

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