The S&P BSE Sensex which slipped by about 5 percent in the month of February could see some relief rally in the month of March which has historically favoured bulls.
Anecdotal evidence suggests that in six out of the last 10 years the S&P BSE Sensex closed in green in the month of March with gains up to 13 percent in the year 2009, followed by 7 percent rally seen in March 2014, and 5 percent gains seen in the month of March in the year 2010, and 2011 respectively.
The S&P BSE Sensex closed in red in four out of last ten years with losses ranging up to 6 percent. The index suffered its worst loss in the year 2008 when it fell by 6 percent followed by the year 2015 when it dropped by 5 percent.
Indian markets witnessed a 5 percent drop in the month of February and analysts’ are hoping for a relief rally in the month of March. But, will be a smooth ride for investors? Maybe not.
The US markets came off last week after US President Donald Trump threatened a 25 percent tariff on steel imports and 10 percent on aluminium without exemptions for any countries. This has already fuelled worries about a Trade War between the counties.
Apart from that, there are concerns about a potential 3-4 rate hikes by the US Federal Reserve which is likely to hurt emerging markets the most including India. The US Federal Reserve will hold its 2-day policy meeting which stars at March 20, Tuesday.
“The US yields had spiked to 2.92 percent during last month while domestic 10-years yield moved up to 7.746 percent and the spread has remained in the range of 4.5%-4.8%. So far the spread has been protected as both the Indian and US interest rates have gone up,” Sandeep Chordia, Executive Vice-President - Strategy, Kotak Securities told Moneycontrol.
“Thus, it is not likely to impact FPI flows adversely for the domestic markets. However, from a sentiment point of view, rising yields usually have a negative impact on equities. To that extent equities in emerging markets will be under pressure from FPIs,” he said.
Foreign institutional investors which pulled over Rs11000 crore from Indian equity markets in the month of February remained net buyers in Indian equity markets in the last ten years.
Foreign investors poured Rs33000 crore in the year 2008 followed by Rs23000 crore in 2009, and Rs22000 crore in the year 2011. However, on the other side mutual funds (MFs) remained net sellers in the last ten years.
Fund managers pulled out Rs10,000 crore from India equity markets in the year 2009, followed by near Rs4000 crore selling in 2009, and Rs3800 crore selloff in the year 2015.
However, the tables might have turned now because FIIs are the ones who are selling and DIIs became net buyers of Indian equities. However, investors should not put too much emphasis on who is buying and selling as investment decisions are a factor of redemptions.
“DIIs per se have no control over the inflows that they receive. But as a rule, the bull market brings a lot of inflows, whereas during corrections and bear market they have to face outflows. Thus if the market corrects deeper and longer there will be an impact on the inflows in the market,” Jimeet Modi, CEO, Samco Securities told Moneycontrol.“However in general, the market is overstretched from a valuation perspective. Therefore any long-term investments should not be made in a hurry. Let market correct, which would then offer buying opportunities,” he said.