Moneycontrol Pro Panorama | Market Correction: Should investors wait on the sidelines?

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Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

The pace of the fall in equity indices and stocks has unsettled many investors. But our writers are not surprised by the turn of events, especially given the dizzying rise in stock prices and valuations. Shishir Asthana, our markets specialist, dubs the current fall as a healthy correction, one which an investor can watch from the sidelines, waiting for two main event risks to pass before placing their bets. One is the outcome of the US Federal Open Market Committee meeting this week and the second is the Union Budget for 2022-23 to be presented on February 1. The first should provide a direction for global markets while the second should allow investors to gauge where the domestic economy is headed.

Meanwhile, in the current market tumble, new age start-ups and stocks that were playing catch-up are bearing the brunt of the selloff. Stocks of 63 IPOs launched and listed in 2021 slid way below their 52-week or post-listing highs. Such a sharp fall within months of listing on the bourses only shows the role of greed and fear in influencing stock prices, writes Vatsala Kamat. The risk of high valuations is not behind us yet as most fintech and tech services companies are still making losses.

Even so, the current fall in the equity markets cannot be attributed only to valuations and an end of record low interest rates. There are worrying signs on the economic front as well. Our Economic Recovery Tracker is flashing mixed signals for a couple of weeks now. After Marico, Hindustan Unilever warned about a demand slowdown in rural areas.

The third wave is weighing on economic activity, reflective in a steep fall in the Nomura India Business Resumption index. The latest advance estimates show a slowdown in economic activity in most developed countries. The January Flash Composite PMI for the US is at an 18-month low. The purchasing managers reading for the Eurozone economy dropped to an 11-month low. Worryingly, inflationary pressures remain elevated, despite the slowdown in economic activity. From less than $79 a barrel at the beginning of 2022,

Brent crude oil futures rose to $86 a barrel on Tuesday.

“Slowing growth and high inflation is the worst case scenario, because, if it persists, the US Fed will be caught in a cleft stick, being forced to tighten at a time when growth is decelerating. That is the market’s worst nightmare,” writes Manas Chakravarty in today’s edition. Do read.

Indeed, the unabated rise in inflation can heighten a sell-off in small and mid-cap stocks, warns Sachin Pal of our research team and is advising a rebalancing of the investment portfolio.

More investing insights from our research team:

CSB Bank notches up robust Q3 on higher recoveries

Axis Bank Q3: Firing on all cylinders; add during market weakness

Sharda Cropchem: Will it continue to re-rate?

What else are we reading?

Budget Chart of the Day | The poor quality of government expenditureWhat has the central government been spending on?

Did investors and RBI overlook governance issues at BharatPe?

Crypto conversations: A wish-list for the crypto sector for this year’s Budget

For SBI Life’s investors, the profitability improvement narrative is not over yet

Lex | Tech stocks: Cape fears suggest sell off has further to go (republished from the FT)

India’s monetary policy is normalising at a gradual pace

And in personal finance:

Personal Finance: Investors are better-off with passive funds over index huggers

Technical picks: Delta Corp, Tata Elxsi, Muthoot Finance and Cipla (These are published every trading day before markets open and can be read on the app)

R Sree Ram
Moneycontrol Pro