NEW DELHI: The bull-run of India’s equity market has faded out in recent weeks and Monday’s big crash could be the first sign of a correction that market analysts have been predicting for quite some time.
On Monday, the BSE Sensex tanked 1,170 points or 1.96 per cent to end at 58,465 while the Nifty 50 closed 348 points or 1.96 per cent lower at 17,416. This was their biggest single-day fall since April 2021. The investors lost over Rs 8 lakh crore in the sell-off as market capitalisation of the BSE stood at Rs 260.98 lakh crore on November 22 as against Rs 269.20 lakh crore in the previous trading session.
“Nifty has corrected by 6.5 per cent from the peak. If global factors turn weak, correction may continue,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told The New Indian Express. He added markets have been overvalued for quite some time now. At 18,000, Nifty was trading at 24 times forward earnings. Contrast this to the 21 PE (price earning) of S&P 500.
“At excessive valuations, some triggers can cause corrections in the market. A combination of negative triggers in the form of warning of excessive valuation by the RBI, some foreign brokerages downgrading India on valuation concerns, sustained selling by FIIs in the cash market, the Reliance-Aramco issue, the disastrous listing of Paytm and fresh wave of Covid in parts of Europe combined to become a perfect storm spooking the market,” added Vijayakumar.
Besides this, global market sentiments have weakened due to the fear of rising inflation and India is no exception to this. Many analysts in recent times have said that rising inflation in India, caused primarily by rising energy prices, can force the central bank to start increasing key rates sooner than expected. This, according to them, can have a severe impact on the stock market.
Vijayakumar advised Investors to wait for the dust to settle down before buying aggressively. “Even now, valuations are rich. Investors can hedge against risk by investing in gold ETFs. When the market stabilises, investors may buy IT which is the clear leader in this rally,” he added.
Amit Gupta, Fund Manager – PMS, ICICI Securities, says that the stretched valuation segments are witnessing profit booking and money is flowing into value segments where earnings have started to grow after several earnings of stagnation. In Monday’s big fall, Sensex fell as much as 1,624 points intraday and Nifty 50 index briefly dropped below its psychological level of 17,300.