The fresh correction after an almost vertical rise of the domestic market seems to have fuelled the debate that the market was rising on misplaced optimism and aggressive rate hikes, rigid inflation and a recession will keep the market under pressure.
Market benchmarks the Sensex and the Nifty have fallen 2.5% in the last two sessions.
While many analysts agree that these concerns persist and the market will remain volatile in the short to medium term, they believe the long-term outlook of the Indian market remains bright.
They point out that the market never moves in a linear motion and the ongoing correction was overdue after the recent sharp upsurge. It just needed a fresh trigger which came in the form of fresh hawkish comments by some of the Fed officials.
Market sentiment could remain volatile in the near term as the focus has shifted to the US Fed's annual symposium this week in Jackson Hole, Wyoming.
As reported by Reuters, Federal Reserve Chair Jerome Powell will deliver his keynote address at the Kansas City Fed's two-day annual economic symposium at the Wyoming retreat on Friday.
Powell's speech on the economic outlook will be in focus since it is likely to signal how high rates in the US can go and how long they will remain elevated to bring down inflation.
You should buy now
Analysts advise one should use this ongoing market correction to buy quality stocks as the outlook of the domestic market remains bright for the long term even as volatility will persist in the short term.
The long-term outlook of the domestic market looks bright, thanks to improving economic indicators, quarterly earnings trends and the world's shift toward the China+1 policy.
Sustained higher GST collections along with healthy direct tax collections and a positive outlook of the rural economy due to a normal monsoon are some of the points that support the bullish view about the Indian economy and the market.
Sunil Damania, Chief Investment Officer, MarketsMojo highlighted that India Inc.'s earnings for the June quarter have also been reasonably admirable. Even though market pundits think otherwise, considering the environment under which India Inc. has operated -- global uncertainty, high crude oil prices, rising interest rates, and other concerns, India Inc. delivered YoY growth both in the top line and bottom line.
"We also witnessed a growth in the topline for the June quarter-on-quarter. We believe there is great merit in India Inc's growth story, and in that regard, we opine that Sensex could touch 65,000 by December 2022," Damania said.
G. Chokkalingam, Founder & Head of Research of Equinomics Research & Advisory Private Limited, also argues that the domestic economic outlook is fairly stable.
"Faster GDP growth, moderating inflation, successful monsoon, a record level of food grain output in the current crop year, better tax collections, higher revenues from telecom auctions, double-digit year-on-year growth in corporate earnings, etc. augur well for the markets," said Chokkalingam.
Only India’s external economic conditions remain a cause of some concern, Chokkalingam added as the forex reserves continue to fall.
Forex reserves are falling partly on account of the growing trade deficit and also due to the selling of US dollars in the markets by the RBI to support the rupee.
"In line with global cues, anticipated rate hikes by both US Fed and the RBI, and concern on growing trade deficits, the domestic markets may also show some downward bias (with a maximum 2% to 3% fall) over the next few weeks or for a couple of months. However, we do not see a major fall in the domestic markets in the short-term," Chokkalingam said.
Concerns over a recession in the US and the UK may have some impact on India but it will have some positives also.
As Chokkalingam underscored, global deflationary conditions or mild recession in the major economies in the world is good for India at this juncture as it would lead to further fall in oil and other commodities prices which would correct the trade deficit substantially, pull down inflation and strengthen the rupee eventually.
"India is certain to post above 6% GDP growth even if the US and Europe see mild recession due to the structural nature of the Indian economy. Major selling of Indian equities by the FIIs is arrested – we believe that their selling is overdone considering India’s GDP growth outlook," said Chokkalingam.
Moreover, retail investors continue to pour into the markets – last week also 4.6 lakh new investors entered the markets. Thus, we believe that mild corrections expected would be a good opportunity to infuse more cash into the equities. Risk to our views is any possible war in Taiwan and aggressive asset reduction by the US Fed," he added.
Disclaimer: The views and recommendations are those of individual analysts or broking firms and not of MintGenie.