Shankar Sharma, Ambareesh Baliga and Vijay Kedia on market volatility; advise investors to not be too adventurous

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The Indian benchmark indices may well feature among the better-performing benchmarks in the current calendar year but experts believe it is time for investors to become cautious and not be too adventurous as there are too many red flags including Iran-Israel war, crude oil prices, China’s stimulus package, and rate hike possibility in Japan among other things.

Leading experts are unanimous in their view that the recent run-up in the Indian markets has been primarily driven by domestic liquidity with fundamentals lagging far behind and this has created a very brittle scenario.

They say that the escalation of geo-political tensions in the Middle East region with its ensuing impact on crude oil prices and the renewed focus on China could all play spoilsport for the Indian markets.

“Indian markets have run up way ahead of what it should have and there would be a cooling period now. It was among the best-performing ones in the last one year but it was also because it was alone in the race,” says market veteran Shankar Sharma.

“Now China has entered the fray and it is a two-horse race. China can race ahead also because of the fact that it had a long bear market. While the Indian markets are structurally strong, this is not the time to get too aggressive,” he adds.

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The benchmark Sensex and Nifty are both up around 16 percent in the current calendar year and have fared better than many other markets including China, UK, Japan, Indonesia, Philippines, and Korea among others.

The rankings of the Indian benchmarks improve if the last one year is taken into account as only US and Taiwan have fared better, as per data from Bloomberg.

This, as per experts, is also a huge concern as they believe that the run-up has been solely on the back of domestic liquidity with most macros presenting a very pessimistic picture.

“It is all about how the sentiments would get affected because the Indian markets are moving up only on liquidity and sentiments with fundamentals left far behind. There are a lot of red flags currently and any of the concerns could blow up and hence investors need to be very cautious,” says Ambareesh Baliga, an independent market analyst.

“If the liquidity starts drying up then there could be a huge correction as macros like earnings, GST collections, manufacturing PMI etc are not supportive right now,” adds Baliga.

Interestingly, not many are worried about the impact on foreign flows even though there has been a huge spike in the flows in September – FPI net buying was pegged at nearly $7 billion in September; it was less than $900 million in August.

There could be some impact but it is the domestic liquidity that is driving the markets, they say. “Foreign flows could also get affected if the new premier of Japan hikes interest rates as that would again impact carry trade, which, in turn, would impact foreign flows globally including India,” says Baliga.

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But there is no denying the fact that the situation has become worrisome and most experts are advising caution.

“The situation has surely become a bit dicey due to the escalation in the Middle East region as now more countries are getting involved,” says well-known investor Vijay Kedia.

“It is a liquidity versus fundamental game now and investors should not get too adventurous as there are mixed signals coming. One should only focus on stocks with a long-term perspective,” says Kedia whose investment bets are widely followed by a large section of investors.

This assumes significance as experts believe that while the benchmarks may be scaling new highs, there is no corresponding rise in the broader markets due to which the portfolios of many investors are still in the red or showing a rather subdued performance.

“The benchmark indices may well be touching new highs but most of the retail portfolios are in the red as many of the stocks that were in vogue earlier are not performing well,” says Baliga while adding that volatility would definitely increase going ahead as market reacts to information and the velocity of information has increased.

Experts, however, also add that the long-term structural story is still intact and investors should look at stocks with a long-term perspective as well.

“No one is disputing the long-term growth story of India but between now and then there could be major rise and falls and investors need to be cautious,” says Baliga.

In a similar context, Kedia says that currently investors should only focus on stocks with a long-term perspective.

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