Market Volatility

Volatility to continue for some time led by global factors

Domestic equities markets have gone through nearly 10 % correction in the past week riding on the back of several factors – following global markets fall and domestic events (Union Budget, Long Term Capital Gains tax etc. Hardening of bond yields globally is one of the key factors driving the market correction. In the Indian context too Bond yields have increased from 6.3% in July 2017 to 7.6% now.

Many stocks which were quoted at higher valuations have been moderated and present an investment opportunity. Overall the economic outlook is favourable and a further consolidation in corporate earnings will give investors a decent earning opportunity.

There is consumption recovery – both urban and rural, savings as well as structural changes like GST which should boost economic sentiments.

Other factor that will play out are the on-going quarterly results season and crude oil price fluctuations, combined with the direction of foreign fund flows and the rupee's movement against the US dollar. All these will also impact investors’ decision to enter the market in one way or the other. Thus equities market this week will focus on earnings, macro-data and, of course, global cues.

If the global markets remain volatile, it might spill over to Indian markets. FPIs (Foreign Portfolio Investors) have been net sellers; hence support from DIIs (Domestic Institutional Investors) remains important in event of global volatility.

Barring today’s (Monday’s) rise in indices, in the past few weeks, a massive sell-off in the global markets has pulled the Indian equity indices deep into the red. Since February 1, 2018, the Bombay Stock Exchange (BSE) Sensex has shed around 1,900 points and the National Stock Exchange (NSE) Nifty50 over 500 points. Market regulator is of the view that Indian stock market volatility may continue for some more time due to global factors. However SEBI feels that there is no cause of worry in terms of volatility, as the country has a robust risk-management system and that there is no issue in terms safety of contracts or enforcement of contracts.

Apart from global cues, the on-going quarterly results season assumes significance as major firms like GAIL, Indian Hotels, DLF, Fortis Healthcare, GMR Infra, Welspun India, Idea Cellular, Jet Airways, Nestle India and Sun Pharma are expected to announce their quarterly results in the this week. The current earnings season is likely to provide strong signs of revival in corporate earnings, underlining the long-term growth prospects.

Besides the Q3 results, investors will keep a close watch on the upcoming macro-economic data points such as the Index of Industrial Production (IIP), Consumer Price Index (CPI), Wholesale Price Index (WPI) and Balance of Trade figures. The Central Statistics Office (CSO) is slated to release the macro-economic data points of IIP and CPI on February 12.

Technically Nifty has immediate supports at 10,276 points and any pull-back rallies could find resistance at 10,703 points.