This was the first positive week for Nifty and Sesnex after two straight weeks of losses, but analysts believe there are more reasons for the market to fall than rise at least in the near term as investors will look at the trend of bond yields abroad to assume higher risk.
“The US 10-year G-Sec yields have surpassed 1.5 per cent on a closing basis, which is somewhat negative for global equities. The dollar index has also moved up from 90 to ~92 levels, which is seen as negative for emerging market currencies and also equities. The tone of the market seems to be on the downside for now,” said Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities.
India VIX has been on a rise and has crossed the 25 level again, which reflects the nervousness among traders. High valuations for the market is another risk that will keep them on their toes. But also, be ready to make the most of the opportunities that a volatile market presents.
“Nifty is trading at a valuation of P/B of 4.3, which makes it vulnerable to correction in case of global sell-off. Looking at the expected strong earnings trajectory over the next two years and stable macroeconomic conditions, investors should use such correction to increase exposure to equities,” said Hemant Kanawala, Head – Equity, Kotak Mahindra Life Insurance.
Rising crude oil prices is another risk to Indian markets. Sharp rise in oil prices will not just lift inflation beyond comfortable levels, but also disturb India’s fiscal maths as the country imports over 80 per cent of its needs. But the rally in crude oil will keep oil and gas stocks buzzing.
Foreign investors have also started withdrawing money from equity markets. They have withdrawn about Rs 900 crore from equities and nearly Rs 5,600 crore from debt this month so far, putting pressure on Indian investor psyche.
Meanwhile, there are some domestic triggers next week–CPI, WPI and IIP–that will be on the radar of the investors. But much of the focus will be on global cues. Hence, Ajit Mishra, VP – Research, Religare Broking, advised to limit naked leveraged trades until we see some clarity emerging over the next directional move.
Equity markets have been in a secular rally since April last year. Analysts have more or less been unanimous on what drove markets higher–excessive liquidity. They still believe cheap money will keep pushing indices higher. But some of the analysts advise not to be complacent and be focussed and analytical.
“Our objection to the above narrative (liquidity-driven rally) is that even in 2020, there has been a 22 per cent drop in Brazil market and 12 per cent drop in the UK market. Hong Kong market fell 4 per cent and France market rose only by 1 per cent. Why did excess liquidity not benefit these markets?,” questioned Anil Sarin, CIO – Equities, Centrum Broking.
“The key takeaway is that one should carefully evaluate ‘simple’ explanations for complex situations. Predicting future behaviour of markets is nearly impossible; even explaining past behaviour can be a challenge,” he added.
