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Why stock markets dust will take time to settle down

On Tuesday, the BSE Sensex was trading 350 points lower at 25,388 in the late morning trade.

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The BSE Sensex and NSE Nifty are likely to open on a flat note with positive bias on Friday tracking SGX Nifty and global markets. (PTI)
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On Tuesday, the BSE Sensex was trading 350 points lower at 25,388 in the late morning trade. (Photo: PTI)

With a fall of around 6 per cent in Monday’s trading session, the key benchmark indices wiped off their gains they made in the ongoing calendar year. The BSE Sensex witnessed its largest one day fall in absolute terms with the BSE Sensex falling 1,624.51 points, or 5.94 per cent at 25,741.56 on August 24. In percentage terms, the fall was merely the 27th largest fall (since 1990 when India liberalised).

Now the big question is how the market will perform from here onwards, Bank of America Merrill Lynch in a research note said, “The equity market should continue to be range-bound in the near term, given the global uncertainty and weak earnings. Valuations have moderated but are still above average.”

On Tuesday, the BSE Sensex was trading 350 points lower at 25,388 in the late morning trade. The index opened at 25,916.26 and had touched a high and low of 26,124.83 and 25,387.58, respectively. The rupee is currently hovering around 66 against the dollar.

The BOFA-ML report also added that Reserve Bank is likely to eventually defend Rs 65/USD expectations by selling up to $20 billion.

Prime Minister Narendra Modi who reviewed the crash on stock markets and plunge of rupee on Monday with Finance Minister Arun Jaitley and other top officials, tried to assure investors and vowed to push ahead with reforms agenda and increase public spending as part of drive to strengthen economy.

The market is expected to remain volatile in the near future as traders roll over their positions in the futures & options (F&O) segment from the near month August series to Sept. The near month derivatives is set to expire on Thursday.

According to market experts, the cascading effect of Chinese equity markets’ fall have now dragged equity markets down across globe, with investors gauging the impact on currencies, trade as well as risk appetite. Since the beginning of the ongoing financial year, the Shanghai Composite Index dipped over 27 per cent to 3209.91 on August 24.

Nithin Kamath, founder and chief executive offier, ZERODHA, said, “The dust is yet to settle, the weakness in the market is likely to continue over the next few trading sessions. Stock specific valuations are going to get attractive. This is a good time for long term investors to add stocks selectively to their portfolio.”

Ritesh Jain, CIO, Tata Asset Management said,”I believe that the recent spike in volatility is here to stay and advise investors to be prepared for more pain. However, India has buffers to weather a risk off event and its resilience will be tested in the days to come. I expect the yield curve to steepen with the belly of the curve outperforming the longer end and recommend to buy duration. In equities, I recommend to take advantage of volatility and believe that the correction provides investment opportunities and stay bullish on good balance sheets with earnings visibility.”

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