VIEW: Much awaited correction finally here,don't wait for bottom

Santosh Nairmoneycontrol.comBefore trading began on Friday, most market experts in India were advising traders to aggressively short sell stocks and index futures on every bounceback. By the end of the day, many of these experts changed tack and were advising traders to hold on to their long positions, if any.The majority view that seems to be emerging is that with Brexit out of the way and the Indian market weathering the storm better than most of its peers, share prices are likely to stabilize over the next few days. With monsoon on track, some are hopeful that the market should resume its uptrend before long. But that may be too simplistic a view. European markets have been roiled by Brexit, and market experts expect a fair bit of turmoil in currency and bond markets in the coming days. If that happens, it will not be long before the volatility feeds into equity markets as well. At this point, nobody is clear on how much of an impact Brexit will have on global economic growth. But the unanimous view seems to be that it is anything but for the global economy.And what’s making investors edgy is that unlike financial crises, political crises cannot be quickly fixed with monetary tools like rate cuts and liquidity infusion. But that won’t stop central banks from trying. Macquarie analysts Viktor Shvets and Chetan Seth see a high probability of a co-ordinated action by central banks inject liquidity, weaken the yen and prevent excessive appreciation of the dollar. The Finance Ministry’s stance is that India is a safe haven in an uncertain world, and passage of some important reforms like the Goods and Services Tax should further reinforce the economy’s strong fundamentals. That may be right in theory, but as past events have shown, Indian markets are not immune to volatility in global markets. If the global stocks and currencies tumble more, Indian equities and the rupee will face the heat. Some market experts say domestic money flow should cushion stock prices in the near to medium term. Here too, it is not a given. The volatility in January this year had triggered huge outflows from local mutual funds, which till then were big buyers of shares. Global crude prices are expected to weaken, which at best will provide some much needed respite at a time when inflation is threatening to get out of hand. Also, stock prices are not cheap at this point. The fact that smaller emerging markets have taken a bigger share of foreign capital flows than India in 2016 is a pointer that foreign funds may not be in a hurry to buy.The immediate reaction of the market to any big event can be deceptive. And if it happens to be an event as big as the Brexit, the effects will be much deeper and become clear only over a period time.There is a high probability that Indian equities could be volatile in the short term. Many experts have cautioned investors not to be in a hurry to buy, and wait for things to settle. Trouble is, the market never announces itself before changing course. And investments made in a highly uncertain environment usually yield handsome profits over a 2-3 year horizon. Rather than wait for things to settle down, it would be better to start allocating money to quality stocks in a phased manner and be prepared for a 20 percent downside near term.