Rajeev Srivastava of Reliance Securities expects the Indian equity market to remain choppy and volatile in October
With volatility expected to persist in the market, investors should focus on value investing. Concerns pertaining to liquidity, rising crude oil prices, weak rupee and increasing trade war tensions between the US and China continue to impact the Indian equity market in October.
The bloodbath on D-Street pulled down both benchmark indices, with the Nifty and Sensex correcting sharply by 3.8 percent each in the first fortnight of October.
Midcap and smallcap indices witnessed a much steeper fall (5-6 percent) during the same period. The sharp correction saw investor wealth being eroded by over Rs 5 lakh crore in October, taking the total loss in market capitalisation to Rs 20 lakh crore since the beginning of September.
Continued contraction in real interest spread between the US and India along with weakening rupee resulted in huge foreign institutional investor (FII) outflow of over Rs 26,500 crore in October, surpassing the September outflow of Rs 21,000 crore.
While there has been a moderate correction in crude price and mild recovery in the rupee led by weakness in the dollar as well as open market operation (OMO) by the Reserve Bank of India (RBI), we expect the Indian equity market to remain choppy and volatile in October.
We do not expect surprises from the September quarterly earnings. Our preview analysis shows that Q2 FY19 earnings are likely to be a mixed bag with only IT and FMCG expected to witness firm growth mainly led by better traction in rural consumption and healthy export income driven by a weak rupee.Ambiguity over fiscal deficit to keep markets choppy
Despite the Centre maintaining its stance of achieving its FY19 fiscal deficit target of 3.3 percent it looks to be a big challenge due to continued shortfall from Goods & Service Tax collections, lower proceeds from divestment and long-term capital gain tax as well as a higher crude bill.
Reduction in excise duty on petrol and diesel has also raised doubts over the government’s endeavour to appease vote banks before assembly and general elections at the cost of fiscal discipline.
The Indian equity market has been enjoying premium valuations largely due to the government’s fiscal discipline and therefore any deterioration in fiscal deficit may harm and result in a de-rating of Indian markets.Ideal time for value investingFor the last three months we have been advising caution in the market. Now, we believe it is the right time for value investing, following the sharp correction in the last two months.
Quality stocks, which have a healthy track record of earnings growth, corporate governance and cash flow, have also corrected sharply.
Usually, retail investors do not participate when there is extreme pessimism in the market and lose the opportunity to make money from quality names when the market stabilises or when there is a strong earnings performance by companies.Disclaimer: The author is Head-Retail Broking, Reliance Securities. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.