The Sensex and the NIfty have tumbled since September 2018. What will make it recover? In fact, will it recover any time soon?
Indeed, stocks are not in the best of spots. The two big worries? US interest rates and crude oil prices. Over the past week or so, crude oil prices have stabilized and, in fact, have come-off and corrected to $75.79 per barrel, down from $80 percent. In rupees, crude oil prices have come off from Rs 5700-odd levels to Rs 4950 levels in October 2018.
But the other worry of US Fed raising interest rates still remains. The Fed had earlier indicated that it would raise the rates thrice this year, and in fact, in the last policy meeting it raised rates to 3.25 percent. This does not spell good news for in India, at least in the short run.
For one, a rise in US rates increases the attractiveness of the US markets. Hence, foreign investors tend to pull out money from emerging markets and back into developed markets, in this case the USA. Foreign investors. In October itself, foreign investors pulled out Rs 27,415 crore from the Indian markets. Since the beginning of this financial year, foreign funds pulled out over Rs 73,000 crore, which is equivalent of $10 billion.
LACK OF EARNINGS
Second, the earnings season has been muted. There were some companies that have reported good earnings, but by and large the performance has been sporadic. Sectors such as IT, pharma, are showing mixed results, while real estate, autos, infrastructure companies are showing average profit growth.
Essentially, there is no trigger for the markets to turn around. Investors will have to bide their time, and look for opportune moments to re-enter the stock market at a later date. Most of the indices are in a down trend including FMCG. Banking too has been showing patchy upticks lately. Mid- and small-caps continue to remain in a downtrend as they are still grappling from a meaningful pick up in revenues post GST.
BROAD-BASED DOWNTREND
All this has bought the markets down by about 14 percent from its all- time highs to present levels of 10,198 on the Nifty. The markets will have to consistently see buying emerge over the next few weeks for it to show a meaningful turnaround. In fact, the past three months the markets have tumbled 9.4 percent, and it does not seem like the sentiments are going to change any time soon.
YOUR GAME PLAN
If you are invested in the markets, look for pockets of resilience. Some places that seem to hold up on their own are export-oriented sectors such as pharma, and IT. But investors will have to be ultra-selective in these sectors.
Second, conserve cash for investing. Over the course of the next few months, the markets are likely to give investors more opportunities for investing because there are lack of triggers for the market.
NO TRIGGERS FOR AN UPTICK
The most important triggers for the markets that investors must look for is a pause in US Fed rate hikes and a further drop in crude oil prices. Unless these two happen, the markets can continue to remain on tenter-hooks for some time more.
