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The market continued its downward trend resulting in a free-fall in stock prices on Valentine’s Day this year. Memes describing how Nifty was equally red as love appeared on screens as many traders booked losses following huge selloffs in equities yesterday. All the sectoral indices including auto, bank, oil & gas, PSU Bank, pharma, FMCG, metal, realty, and capital goods indices ended in the red.
The effect of the crash was aggravated with the Ukraine crisis raising concerns over oil supplies. Crude oil prices are already at a seven-year high owing to intermittent instances of clashes between Russia and Ukraine. If crude oil goes any higher, India will witness a higher pressure on its balance of payments, thus, raising the chances of higher inflation. A weakening rupee versus the dollar has led to foreign investors selling off Indian equities in large volumes.
Are we awaiting more volatility?
Amid the downsides synonymous with a fall in stock prices, many retail investors continue to ask if this is the right time to invest or enter the market. While many reiterate that you may start nibbling at some shares, especially, those that have fallen beyond 30-40 per cent. The global indices underscore volatility in the markets.
Vinit Pagaria-Head - Data and Research, StockEdge says, “Investing is a continuing activity and it would be futile for investors to try and time the markets. Having said that, the terrific rally that the Indian equities have witnessed post the Covid crash in March 2020 has left many being silent watchers with low equity allocations on their portfolios. On the other hand, a new breed of first-time equity investors has entered the fray, and for them, it had been a one-way uphill journey till now.
A correction in stock prices is an opportunity to add up on quality companies. However, there is a need to be extremely stock-specific as the liquidity-driven across-the-board rally is now showing signs of tiring out. The broader indices have seen a correction of 10-12% from recent highs, enabling value to emerge in many quality stocks.”
The market has sprung into action with Nifty already in green. While it looks like the markets have pulled back post the big fall, we may still have to wait to check if the market would hit 18,000 on the upside or slide up to 16,500 on the downside. Suresh Sadagopan, Managing Director & Principal Officer, Ladder7 Wealth Planners Pvt. Ltd says, “This is very difficult to predict. We cannot invest thinking the markets will go up or down. We need to invest based on our needs and with time on our side. Only those who give their investments enough time making money.”
Focus on adding value than growth
As of now IT sector shares are outperforming even in a spasmodic staggering market. Constantly changing narratives over bond yields or crude oil prices have led to very unsure investment and trading strategies. Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities says, “The market is currently in a consolidation phase.
However, yesterday’s reaction was more intense due to Geo-political tension and the rising crude prices, which were weighing on investors’ sentiments, resulting in a rise in volatility. We believe investors should utilize this increase in volatility to build positions in quality large-cap and mid-cap stocks as the earning expectations for Indian corporates remain strong.”
“The recent correction has paved the way for consolidation - both price-wise and time-wise. While some stocks have seen a sharp decline after a fabulous run-up over months, others have seen a time correction. Both are healthy for the structural setup of the markets and are necessary to take out weak hands.
The broader fundamentals have been strong and the quarterly numbers have been reasonably good as well. Nevertheless, global triggers like political risks and fears of tightening liquidity would continue to keep the markets volatile in the short run,” says Pagaria.
Sectoral rotation is expected to happen with some sectors yielding better results due to the effect of the pandemic as well a change in how many view investments. Exposure to equities must continue, though the focus must continue buying ‘quality stocks’ apart from bringing down the risk through investment in shares of specific sectors. Long-term investors must aim for a bit of sectoral rotation within the portfolio for continued returns and prevent it from going red in its entirety.