Domestic equity benchmark the Sensex is down two percent this year to date (YTD) as investors remain concerned over inflation, rate hikes, slowing global economies and shrinking corporate profitability.
After last year's outperformance, the domestic equity benchmark is underperforming many of its global peers.
Data show that while Sensex and Nifty are down two percent this year so far, NASDAQ is up 16 percent, Shanghai Composite Index is up 10 percent and FTSE 100 is up 6 percent.
Why is the domestic market underperforming?
One of the biggest reasons behind the market's underperformance is its valuation which has now come down to a reasonable level.
As per Trendlyne, the current price-to-earnings ratio (PE) of Nifty50 is 20.6 which is slightly below its one-year average PE of 20.92.
However, earnings downside risks loom which can make investors uncomfortable even at this valuation.
As brokerage firm Kotak Institutional Equities highlighted in a report that the Indian market valuations may appear more reasonable compared to recent history, but earnings downside risks exist given the increasing uncertainty around growth.
While most of the positives about the Indian market, such as the economic growth of the country, were already on the table, the downward revision of growth estimates punctured the momentum. International Monetary Fund (IMF) has lowered its projection growth for India during 2023-24 to 5.9 percent from 6.1 percent earlier.
While the short-term outlook of the domestic market is not very bright, the long-term India story remains intact owing to the prospects of its economic growth.
As per the RBI, India’s real gross domestic product (GDP) growth for 2023-24 may remain at 6.5 percent.
International Monetary Fund division chief Daniel Leigh recently said that it is a "very strong economy."
As reported by Mint, Anne-Marie Gulde-Wolf, Deputy Director for Asia and Pacific Department, IMF said that surpassing the global uncertainty and headwinds, the Indian economy will continue to perform well and maintain its position of being one of the fastest growing economies in the world.
However, in the short term, the market may remain rangebound.
"Headwinds in the form of inflation, interest rate hikes, banking crisis and global recession have muddled the near-term outlook for the economy. Markets are expected to be rangebound in the short term," said Rajnish Girdhar, Chief Executive Officer of Karma Capital.
El Nino conditions could have a bearing on the monsoon, which in turn, would have an impact on food prices, inflation, and economic growth,” said Girdhar.
Brokerage firm Kotak Institutional Equities also expects equity markets to stay muted in the near term despite the surprising pause by the RBI and market valuations becoming more reasonable after a large time-wise correction over the past two years.
The brokerage firm highlighted that the weakness in domestic consumption demand and a slowdown in IT exports will hit India's growth prospects in the current financial year.
Look at the bigger picture
Most analysts say this is not a market for short-term traders, but long-term investors have plenty of opportunities in it.
Analysts suggest one should pick quality stocks at reasonable valuations from pharma, banking and infra sectors at this juncture for a long-term horizon.
The objective of investing is to generate returns on the capital that is invested over time. The ultimate goal of investing is to grow your wealth over the long term, achieve financial independence, and meet your financial goals.
Equity remains one of the best asset classes if you invest for the long term and in a disciplined way. That way, you can reap the benefits of compounding. If you aim for quick money, chances are you will incur more losses and have very few spells of success.
Also, it is always better to create a diversified portfolio which can withstand market volatility.
As Arun Chulani, Co-founder of First Water Capital Fund says: "It is the investors' job to try and create a diversified weather-proof portfolio that one can feel comfortable holding and even add to when the storm clouds are out."
Disclaimer: The views and recommendations given in this article are those of individual experts and broking firms. These do not represent the views of MintGenie.