The Nifty50 slipped more than 300 points from its record high of 10,178 recorded on 19th September but the fall may not be over yet as analysts tracking markets see another 3-5 percent fall which could take the index towards 9,500-9300.
Any pullback rallies might be used for creating short positions which would put further pressure on the market. Traders are advised to remain cautious and avoid using leverage.
For investors, it is a golden opportunity to buy into quality stocks on declines but in a scattered way. Investors could deploy 10 percent of cash at current levels and rest on every decline.
Excessive valuations were becoming a concern and sharp rally in small and midcaps did signal that something was not right which we have also been highlighting in our previous articles.
“The present fall has been broad-based, but we are still close to record peaks than previous peaks seen last year. Another 3 percent fall can still consider within the ambit of a healthy correction in a bull market,” Anand James, Chief Market Strategist – Geojit Financial Services told Moneycontrol.
Geopolitical tensions alone can’t be blamed for rather a strong correction for our markets compared to other global markets.
There is growing concern of India’s GDP growth rate which hit a 3-year low for the quarter ended June, apart from that there relentless selling by foreign investors, bottoming out of the dollar vis-a-vis the rupee and rising crude oil prices, all added to the market mayhem.
Although we are not in bubble category as we were in January 2008, but there is no comfort in valuations in a lot of sectors which do pose a concern.
“We believe the correction is a result of combination of factors, viz. geopolitical risks as posed by North Korea, consensus on valuation concerns coupled with anaemic growth in Indian markets, Fed Reserve unwinding of its balance sheet thereby threatening liquidity, focus shifting to primary market,” Shashank Khade, Director, and Co-founder, Entrust Family Office Investment Advisors told Moneycontrol.
“The range from 9,500-10,000 on the Nifty seems to be a good range to expect for the markets to settle down. We believe sectoral rotation could be in the offing. IT services, consumer discretionary, banks which are in the midst of raising capital through the sale of a stake in subsidiaries could be interesting bets,” he said.
The current fall in markets got triggered by not just one factor but a combination of factors.
Domestic liquidity which was keeping the market afloat was suddenly sucked out in the month of September as a result of a flurry of IPOs hitting D-Street.
As many as seven IPOs hit D-Street in the month of September raising cumulatively nearly Rs17000 crore from Indian equity markets.
“Liquidity is being sucked out from the market, through IPOs, FII selling, and QIPs. Exuberance is seen in broader markets with no major correction for a long time,” Hemang Jani, Head - Advisory, Sharekhan told Moneycontrol.
“We don’t see a reason for a sharp cut. To our mind, a correction of 5-7 percent at index and 10-15 percent at stock level is possible with some high beta stocks correcting more. But this correction should be used to buy quality stocks like Maruti, Britannia, HDFC Bank, Godrej Industries, HDFC,” he said.