EXPERTS ADVISE AGAINST NEW INVESTMENT IN MARKET
Geopolitical tensions driving the sinking after Aug 2 and this could continue; however, some optimism on the longer term
The markets have been on a downward spiral since August 2, when the National Stock Exchange's Nifty 50 hit a high of 10,137 in intra-day deals. Since then, the index has shed 4.2 per cent, or 427 points to 9,710 at Friday's close. On the BSE, the S&P BSE Sensex has slipped 1,263 points or 3.9 per cent to 31,213.
This was triggered by rising geopolitical tension – between India and China on the Doklam standoff and the developments between North Korea and the United States (US). “Clearly, the markets have been rattled by the geopolitical developments, especially relating to Korea and the US. One needs to keep a tab on the situation, though I feel things can cool off over the next few days. The markets are completely dependent on how the rhetoric plays out,” explains U R Bhat, managing director, Dalton Capital Advisors.
That apart, the Securities and Exchange Board of India's order to ban trade in 331 suspected 'shell' companies, subpar second quarter results of select index heavyweights and the possibility of downside risks to the earlier growth forecast of 6.75-7.5 per cent for FY18, as highlighted by the Economic Survey on Friday, were some of the other factors.
Analysts say there could be more pain in store for markets that have recently taken cognizance of the developing geopolitical situation. “Global events that are beyond market control have triggered the recent fall. If there is more action over the weekend, the markets will continue to fall in the coming week as well. A lot depends on the geopolitical front and, to that extent, predicting the specific index levels is risky,” cautions Jayant Manglik, president, retail distribution, at Religare Securities.
Since its recent high on August 2, investor wealth as measured by market capitalisation (m-cap) of BSE listed companies till August 11 had dipped by ~5.47 lakh crore.
So, should you use this market correction to buy? Experts don’t think so. Manglik, for instance, says the fall will present an opportunity to buy but doing so in the middle of a storm is not advisable. Investors should stay on the sidelines before making a fresh investment.
Gaurang Shah, head investment strategist at Geojit Financial Services, prefers a staggered approach. “Invest 20 per cent of the investible corpus now and pump in more if the market falls further,” he says.
From a long-term perspective, however, analysts do remain bullish on the markets, despite the ongoing geopolitical tensions and high market valuations. Fundamental transitions and lining-up cyclical drivers will raise the valuation framework till the gains actually play through, they feel.
“Valuations will revert but only once growth (economy and earnings) and returns (on equity and on capital employed) settle higher and interest rates settle lower. Till then, India will trade high. We see the market at 11,100 in June 2018, at 19 times the one-year forward earnings,” writes Aditya Narain, head of research for institutional equities at Edelweiss Securities, in a coauthored report with Prateek Parekh and Akshay Gattani. Their overweight sectors are banks and financials, consumer discretionary/durables, cement and construction.