Sensex, Nifty show cautious rebound after sharp fall; what should your investment strategy be?

The ongoing geopolitical tensions, rising crude oil prices, and a weakening rupee are key concerns for foreign investors

• Sensex fell nearly 2500 points, Nifty dropped almost 800 points
• HDFC Bank shares declined over 5% after chairman's resignation
• RBI reassured HDFC Bank's financial strength and stability

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The Sensex opened at 75,008 on Friday, rising nearly 800 points from its previous close of 74,207, signalling a sharp rebound in early trade. The Nifty also moved higher, opening at 23,260, up 258 points from its last close of 23,002, as markets showed signs of recovery around 9:50 IST. The gains come after the sharp fall seen in the previous session.

However, HDFC Bank shares remained under pressure, opening at Rs 786 compared to the previous close of Rs 798, indicating a slight decline in banking stocks.

Meanwhile, crude oil prices showed some easing. WTI crude futures slipped below $94 per barrel after recent gains to $101 per barrel, as easing geopolitical concerns helped ease fears of supply disruption.

This comes after a steep correction on March 19, when markets saw heavy selling pressure, wherein BSE market cap had lost almost Rs 12 lakh crore in investors' wealth in a single day, and sharp losses across indices. The rebound today appears cautious, with investors watching global cues and sectoral movements closely.

Shrikant Chouhan, Head – Equity Research, Kotak Securities, said, "We believe the market structure is currently weak, with a bearish candle on the daily charts and a lower top formation on the intraday charts, suggesting further weakness from current levels."

Why did the market decline and show volatility?

Yesterday, it was largely dragged down by the sell-off, driven by a combination of global and domestic factors that weighed on investor sentiment simultaneously. Crude oil prices have risen to around $100 per barrel amid rising tensions in the Middle East, fuelling concerns of a prolonged disruption. Moreover, global signals have remained weak after the US Federal Reserve indicated there may be limited scope for rate cuts.

Meanwhile, uncertainty also developed at HDFC bank and there was heavy selling, with shares closing at Rs 800, down over 5 percent. The index declined as investors reacted to the resignation of the bank’s non-executive chairman, Atanu Chakraborty, on March 17, making the stock one of the main reasons for the benchmark’s fall.

However, the Reserve Bank of India (RBI) later stepped in to calm nerves, stating that HDFC Bank remains financially strong and well-capitalised, with no material concerns around its governance or operations. The RBI added that the lender has sufficient liquidity and continues to be run by a professional management team, signalling stability despite the leadership transition.

"The development clearly impacts investor sentiment and comes at a time when the markets are already grappling with lot of macro-uncertainty. However, the assurance from the management team, Mistry’s appointment as an interim chairman, and the RBI endorsing the corporate governance and compliance standards of the bank have helped assuage some of the grave concerns, stated Motilal Oswal Financial Services research report.

The broader market weakness was also linked to sustained outflows by foreign institutional investors (FIIs), who have been pulling money out of Indian equities amid global uncertainty. The combined effect of FII selling, global uncertainty, and pressure on heavyweight stocks like HDFC Bank intensified the sell-off, leading to a steep fall in the Sensex.

Kranthi Bathini, Director of Research at WealthMills Securities, said, “Foreign portfolio investors have largely remained net sellers, which has been putting continuous pressure on the markets. However, domestic institutional investors have been net buyers and have helped absorb some of this selling in the short to medium term."

“The ongoing geopolitical tensions, rising crude oil prices, and a weakening rupee are key concerns for foreign investors. This creates a double impact on returns, which is why we are seeing sustained outflows not just from India, but across emerging markets,” said Bathini.

What should be the investment strategy?

Regarding what investors should do in this situation, Bathini said markets are likely to remain volatile as long as crude oil prices remain elevated. He advised a ‘buy on dips, sell on rallies’ approach in the near term, while urging long-term investors to stay invested with a minimum horizon of two to three years and remain aligned to their financial goals.

“Domestic flows remain strong, supported by steady SIP and mutual fund inflows, along with contributions from insurance companies. This consistent liquidity has been helping stabilise the market despite foreign selling,” he added.

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