Markets’ southward journey unlikely to end soon as Nifty hits fresh 52-week low

There is a strong likelihood of another 75 bps hike in the July cycle even though the US Fed Chair Jerome Powell downplayed the outsized interest rate hikes after a 75 basis points (bps) increase and said that, “75 bps hikes were not the norm and that the pace of tightening would depend on the course of inflation”.

What lies ahead for Indian Markets?

Experts are of the opinion that the pain would likely persist for the equity markets in the near term and India may witness a bear market in the remainder of FY23. That apart, concerns about aggressive rate hikes by global central banks will begin to hurt demand amid higher cost pressures on companies which will also lead to earnings downgrades. Things are likely to aggravate further as the experts foresee a recession-like situation in developed economies which will stall the growth of other developing nations

According to Madan Sabnavis, Chief Economist, Bank of Baroda, “This would mean two things for India. First, the investment flows will be impeded further with higher interest rates making US markets more attractive than EMs (emerging markets), and second, currency volatility will be here to stay and the rupee will move down”.

The extent will depend on how the RBI (Reserve Bank of India) manages the same. So far, the rupee has depreciated at about the median rate and is hence not out of sync with what is happening to other currencies. “But our monetary policy will largely be driven by the domestic inflation trajectory while keeping an eye on the fallout of Fed rate hikes”, Sabnavis added.

The markets will take some time adjusting to the hawkish commentary by the US Fed Wednesday night, where they have raised the terminal rate projections to 4 percent.

Is there a more downside?

Markets are facing selling pressure on all rises. This shows the eagerness of investors to go light on equities for the time being. Experts are of the opinion that calling a bottom is tricky but a long-term bottom still seems some time away.

“Now we’re eyeing 15,400-15,450 as immediate support, however, the broader structure indicates the possibility of much lower levels closer to the 14,800-15,000 zone and that could be the area of consolidation before the reversal”, said Ajit Mishra, VP – Research, Religare Broking.

In this market, it’s tough to catch the falling knife so market needs more time and price correction to give that sense. "We believe that in bear market one should not try to look at support to hold but look at any resistance to surpass to change the market stance", said Chandan Taparia, Vice President - Equity Derivatives & Technicals, Broking & Distribution, Motilal Oswal Financial Services Ltd.

Taparia suggested that if Nifty manages to cross and hold above 15,735 zones then only bounce and selling pressure could take a halt for a bounce towards 16,161-16,350 zones while on the downside supports are drifting lower to psychological 15,000 marks.

The India VIX, which indicates the degree of volatility traders expect over the next 30 days, is hovering well above the comfortable level of 20 percent. Today, it increased further by 3.25 percent to 22.87 levels.

"Rising volatility indicates that bears are having comfort in the market from short term point of view", added Taparia.

“The volatility will stay for now, and there could be a further downside from here before we see the markets bottoming out by the end of the quarter”, said Sonam Srivastava, Founder, Wright Research. “The big trigger for recovery will be easing US inflation or the end of Russia and Ukraine war”.

What should Investors do now?

Experts advise investors not to panic but at the same time exercise caution and look for quality stocks to build new positions as their valuations have now become attractive.

“Retail investors could review their asset allocation and equity portfolio and carry out rebalancing by making necessary changes to the asset classes and equity portfolio”, said Deepak Jasani, Head of Retail Research, HDFC Securities. “For rebalancing equity portfolio, they can wait for some intermittent bounces which can be used to raise some cash to be deployed when the current downtrend comes to an end over the next few months”.

The investors are likely to take some losses on some stocks that were bought at higher levels and which are unlikely to scale their earlier highs due to micro or sectoral developments.

Retail investors need to hold on to their core investments in quality stocks. “No doubt, there are near-term challenges but India's growth outlook for next 3-5 years looks very encouraging”, said Gaurav Dua, Head - Capital Market Strategy, Sharekhan by BNP Paribas. “Also, the valuations have turned attractive now as, on a trailing twelve-month basis, Nifty is trading at 21X now which is largely in line with 19x during the pandemic-driven panic bottom in March 2020”.

Investors should look at companies that have pricing power and low leverage. It is not advisable to go for panic selling or bottom fishing in the current market conditions.

“We suggest that people start SIP right now instead of lump-sum investments and go for a balanced allocation”, said Srivastava of Wright Research. She is of the opinion that the commodities would do well while discretionary spending will go down.

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