Bears came roaring back on the Street, after a day’s break, on the back of the US Federal Reserve’s hawkish stance. Indian benchmark indices tumbled over 2 per cent each on January 27, wiping off nearly Rs 5.6 trillion worth of investor wealth by noon deals.
The added volatility comes as domestic investors reacted to the US Federal Reserve reaffirming its stance on a tighter monetary policy starting from March 2022. This led to a jump in the 10-year US bond yields of the US and the dollar index, which is negative for emerging markets including India. Geopolitical tensions between Russia and Ukraine pushed up crude oil prices. Apart from this, the market on Thursday is also facing a monthly expiration date for January Futures and Options (F&O) contracts, which added to the volatility.
Analysts say that the domestic markets are mirroring the weak global cues amid hawkish US Fed. “Globally markets are very volatile amid hawkish US Fed and rising geopolitical tension and Indian markets are also facing the same pressure due to heavy FIIs’ selling,” said Parth Nyati, Founder, Tradingo.
Furthermore, Nyati explained that if we look at the Indian markets then there are lots of positive triggers that may help our market to outperform but we just need some calmness in global markets.
“The market is not going in the budget with any euphoria so there is a good chance of a post-budget rally and if we look at the last three years’ trend then the Market corrects ahead of budget then it witnesses a post-budget rally,” Nyati added.
Echoing similar thoughts, Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services, said: “Back home in India Brent crude at $ 90 is emerging as a major macro concern and massive FII selling (Rs 7094 cr on Tuesday) is a strong headwind for markets. DIIs are aggressively buying high-quality stocks with earnings visibility. It remains to be seen how this tug of war between FIIs and DIIs end.”
The hawkish commentary by Fed chair Jerome Powell made the market wonder whether there will be four or five rate hikes this year. Thereafter, the domestic markets have been gripped by the dollar jump and fears of foreign outflows, Vijayakumar added.
Further, analysts are saying that Nifty may face support near 16,500 -16,200 levels. “The market is jittery on account of possible fiscal tightening by central banks which was holding the economic activities so far. Fed has already signalled a rate hike before March this year and other central banks are also pondering to take similar steps to curb the rising inflation. The drainage of liquidity has already started as FIIs are pulling money out of the markets. The ongoing political tension between Russia and Ukraine is also keeping pressure on the investors’ nerve. All these factors are draining the investors confidence and hence this sell off has been triggered. Nifty may face a support near 16500 -16200 levels till then the downtrend will continue,” said Ravi Singh, vice Ppesident and head of research, Share India.
What should investors do?
Speaking on what should investors do amid the carnage on Dalal Street, Vijaykumar, said “Investors should respond to this highly volatile phase with utmost caution.”
“Amidst rising volatility in Indian equity markets, long-term investor should not worry. They should keep on accumulating quality stocks which are now available at good 10-15 per cent correction. Investors/Traders who are looking for swing opportunities should avoid the market as of now, as high degree of volatility is expected, at least till budget session,” said Gaurav Garg, head of research, Capitalvia Global Research Ltd.
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