Indices in for rough ride: Experts

See pressure building globally after Fed minutes release; but say correction could spur more buying

Analysts foresee a few choppy sessions in the days ahead for the Indian equity markets. However, they feel that the indices will bounce back after a correction as that could spur buying by new investors.

Analysts said equity markets across the globe are under pressure after the minutes of the recent US Federal Reserve meeting revealed that most of its officials agreed that they could start slowing the pace of bond purchases later this year.

Concerns of a taper gain significance as the delta variant threatens the global economic recovery. Analysts said investors have concerns about whether economies and financial markets will be able to cope with reduced monetary support in the face of the virus’ spread.

Treasury yields fell as investors sought safe assets. The US 10-year bond yield was trading at 1.24 per cent, its lowest in almost two weeks. Brent crude was trading around $67 at 8 pm on Thursday.

The fact that concerns over US Fed tapering have resurfaced when stocks are trading at elevated valuations is worrying. And domestic cues in India have not been very encouraging either.

“It’s not positive news, and markets could be choppy in the near term. The market had gone up sharply and was looking for a correction. We have not had a 10 per cent correction for a long time now. It happens every year, and it is healthy for the markets,” said Jyotivardhan Jaipuria, founder of Valentis Advisors.

However, analysts are confident that the markets would bounce back after some choppy sessions. They expect more buying after a correction.

“Markets should open gap down. We have seen in the past of buying coming at lower levels. Fundamentals are irrelevant now; it is a question of sentiments and liquidity. We have seen investors buying even after 5-7 per cent correction,” said Amabareesh Baliga, independent markets analyst.

Analysts are advising investors to exercise caution, especially in the small- and mid-cap space, as these stocks are more susceptible to a steep fall. Moreover, they say any slight trigger could result in profit-booking when valuations are high.

G Chokkalingam, founder of Equinomics, said he is seeing some evidence of profit-booking already. And there is selling pressure in the broader market.

“Loss-making businesses are still enjoying lifetime high, in terms of market capitalisation. Stocks with steep valuations might fall, but the indices will bounce back after a 2-3 per cent correction. Many macro trends have shown recovery compared to last year. Lots of new investors have come,” he said.

The subdued monsoons and mixed corporate results in the first quarter of FY22 have added to concerns about Indian equities. “Earnings have been mixed. More than half of retail investors are new, and they have never seen a markets crash,” said Baliga.

However, some analysts said earnings would stabilise over the long term.

“Earnings over the next five years will double from here and will drive the market in the days to come. The June quarter was affected by the lockdown in May. On a quarter-on-quarter basis, it was not great. The next quarter should be much better,” said Jaipuria.

After being net sellers in July, foreign portfolio investors have been net buyers so far in August to the tune of ~3,898 crore.

Going forward, investors will keenly follow the US Fed’s conference at Jackson Hole next week and are expecting a timeline on tapering of stimulus.