After six days of continuous selloff, how much further can Nifty fall?

The market selloff has intensified in the last few days largely due to record depreciation in the rupee against the US dollar. However, analysts believe the market may not see any more intense selling.

According to analysts, fundamentals remain strong and valuations are also at comfortable levels. Though the economic turmoil in Europe may have some adverse impact on India, the market has already priced those.

“Market fundamentals are not affected much apart from rupee depreciation. The fall in rupee is responsible for the recent sell-off and is also negating the positive impact of the decline in crude oil prices,” said Deven Choksey, Managing Director, KR Choksey Shares and Securities.

The rupee has weakened to record levels against the US dollar in the last couple of weeks. The local currency is racing towards 82 level against the greenback. This has also led to outflow of foreign funds from the market.

After a net inflow of about Rs 55,000 crore in July and August, foreign investors have net invested just about Rs 1300 crore in September. This is also likely to go lower as foreign investors continue to withdraw money.

Analysts said the main reason they have been selling in India is that bond yields on US securities have risen to close to 4 percent. That means, investors can get 4 percent on their investment without taking any emerging market or currency risks.

Another risk to the global market, including India, is the aggressive Federal Reserve which has indicated that it will continue to raise interest rates for a while now. This has also raised the probability of a deep recession in Western countries.

“India can’t remain immune to global recession,” said Siddhartha Khemka, Head of Research (Retail) at Motilal Oswal Financial Services. “India’s outperformance was due to domestic positives including high demand, good GDP growth rate and fall in commodity prices that reduced raw material costs.”

He added that these positives will continue to provide a cushion against negative global cues and India will likely continue its outperformance against global markets. Year to date, S&P 500 is down 24 percent against 4 percent fall in Nifty.

Nifty has slipped below its 200-day moving average but both Choksey and Khemka believe 16,800 level on Nifty will likely be the trough for the current leg of market fall. However, Khemka added the index may fall another 2-5 percent from that level by year-end.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, agreed with others that India can remain an outperformer supported by its strong fundamentals but India cannot remain immune to major global trends.

“The texture of the market has changed from ‘buy on dips’ to ‘sell on rally’ and therefore, investors have to be cautious in the market now. The Bank Nifty has sharply corrected by 8% from its recent record high and is weak now. IT is likely to remain resilient supported by currency tailwinds. Autos and capital goods can be slowly accumulated on declines,” he said.