MUMBAI/CHENNAI: When the Wall Street catches cold, global markets sneeze. That has been the norm and Indian equities are no exception. The global sell-off this week comes at a time when major markets are sitting on near record highs, but analysts believe the ongoing volatility will continue for some more time as equities could be further subjected to both fundamental and technical corrections.
With Dow Jones Industrial Average shedding over 1,000 points for the second time in a week on Thursday, Asian and European indices predictably plummeted on Friday. Reversing the previous day’s gains, benchmark Sensex and Nifty fell 1.18 per cent and 1.15 per cent, respectively, with investors losing a massive Rs 2.24 lakh crore in seconds.
From record highs in January, both Dow and S&P 500 slid 10 per cent this week — entering a typical definition for correction phase. Typically, this is a time when bargain-hunting investors rejig portfolios, stocking up good scrips at low prices — little wonder, traders are swamped with ‘Flat 40 per cent: End of Season Sale on NSE & BSE’ messages on Whatsapp doing the rounds. But analysts insist that India remains a long-term ‘buy’ market, though some believe valuations are still not near desirable levels.
“Volatility will sustain for the short term in line with the global markets. After a sharp and meaningful price correction in a long while, there is bound to be some correction. This phase has to be constructively used to accumulate good quality businesses at reasonable valuations,” said Devang Mehta, head of equity advisory at Centrum Wealth Management.
Since the bull market began in 2009, markets correction happened nine times, with the ongoing market rout triggered by concerns over rising interest rates, inflation and bond yields. This spiked the Vix volatility index, or the fear index, sharply, leading to one of the worst selloffs in Asia. On Friday, the Hang Seng closed with a 9.5 per cent drop for the week — its worst weekly performance in almost a decade, while Japan’s Topix ended 7 per cent — its biggest weekly drop in two years. China was no outlier with the Shanghai Composite index falling 5.6 per cent.
Volatility will likely continue with funds shifting from equities to debt because of higher rates, according to Vinod Nair, head of research at Geojit Financial Services. “In India, recovery is underway with corporate earnings higher than market expectations, though domestic market will follow global cues in the near-term,” he said.