After three days of healthy gains, Indian equities traded volatile in intraday trade of March 11 in absence of fresh triggers even as global sentiment remained fragile as a solution to the Russia-Ukraine war still looks remote.
The last three days of gains were underpinned by the expectations of an in-line outcome of state assembly elections. As the elections are over, the market appears to be back to the Russia-Ukraine episode and its global ramifications. Surging crude oil prices, falling rupee, a sustained outflow of foreign capital and imminent Fed meeting are back under investors' radar.
The final results of assembly elections in five states – Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa – showed what most analysts and market participants were expecting. As the results did not throw any negative and positive surprises, they did not have any impact on the market sentiment.
"The 2022 state election results did not deviate much from the average trends predicted by exit polls. Even with policy continuity, the poll results are not likely to impact markets' direction much, and the focus will be squarely on how policymakers minimise the economic cost of the geopolitical quagmire," brokerage firm Emkay Global pointed out.
"If the election results would not have been in-line with expectations, then the market might have taken it as a negative, fearing that the government may turn more populist and the agenda of development will take a back seat. Since that did not happen, the market is happy," said Pankaj Pandey, Head of Research at ICICI Securities.
On the global front, talks between Russia and Ukraine failed and despite severe economic sanctions, Russia does not look ready to relent unless Ukraine conceded to its demands.
The US, the UK and the European Union have been mounting pressure on Russia but nothing has worked so far in terms of ending the war.
A Reuters report suggested, US President Joe Biden on March 11 will call for an end of normal trade relations with Russia and clear the way for increased tariffs on Russian imports as punishment for its invasion of Ukraine.
US yearly inflation rose to 7.9 percent in February, its highest level since January 1982 and the inflations numbers will act as a critical factor in the upcoming US Fed meeting.
There are many factors for the market to trade in the red. However, the market may have factored in most of it and unless a surprise occurs, the market may remain subdued in the short term even as a sharp fall is unlikely.
"Most of the negatives, including a military war, a sharp jump in crude oil prices, are already there on the table so the market has fewer reasons to be volatile. Even though volatility will take time to cool off, a sharp fall in the market is unlikely unless there is a new negative trigger," said Pandey.
Of late, the outflow of foreign capital has been one of the biggest concerns of the Indian market. Some analysts, however, believe that the FPI outflow may not deal a severe blow to the Indian market unlike the past as the strong influx of domestic investors in the last few years will mitigate the FPI outflow.
"FPIs have been selling since October last year and despite that, we are down only 10 percent. This is a massive change compared to the past. In March 2020, Sensex crashed 38 percent when FIIs sold just around $8 billion," said G Chokkalingam, Founder, Equinomics Research & Advisory, who believes domestic investors have already saved the market from a major crash.
"An important takeaway from the sustained FII selling is that it is not impacting the market much. For instance, FPIs sold IT equity worth ₹10,984 crore in February. But this month, the IT index has outperformed. This trend is likely in financials too where FPIs have been major sellers since last October," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Analysts have been saying that the present weakness in the market is an opportunity to buy stocks as most of them have valuation comfort.
"Investors can use the present weakness in markets to accumulate high-quality financials," said Vijayakumar.
