Market, Rupee Slide: ‘Stay invested as fundamentals intact’

Market, Rupee Slide: ‘Stay invested as fundamentals intact’

Experts say the market saw sell-off on account of weak global cues due to geopolitical tensions surrounding North Korea, recent revision of China’s sovereign rating and is expected to bounce back as fundamentals are strong.

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The inflow is on the back of domestic retail money into mutual funds, which stood at a record `19,515 crore in August. (Illustration: C R Sasikumar)

In the seven trading sessions between September 19 and September 27, the benchmark Sensex at the BSE crashed nearly 4 per cent or 1,264 points. In the same period, the rupee also fell over 90 paise to touch a six-month low of 65.71 against the dollar. Amid growing concerns on geopolitical tension surrounding North Korea and some concerns on the pace of growth of the Indian economy and talks of a stimulus package, foreign institutional investors sold domestic equities worth net of Rs 4,293 crore in the seven-day period. With this, the net outflow over the two-month period between August and September 2017 stood at Rs 18,965 crore. Even as the outflow of FPI money has resulted into a fall in the equity market and a weakening of the currency market, participants are of the view that while there may be some correction in the market in the near term on account of global factors, India’s long-term story is intact and retail investors should continue to remain invested.

“The correction is a reflection of the healthy market where both buyers and sellers exist. There is nothing structurally wrong with the market and there is nothing to be worried. This kind of correction only expands the market and retail investors should not get worried,” said Raamdeo Agrawal, chairman, Motilal Oswal Asset Management.

There are others who say that the fundamentals of the Indian economy remain intact. “The market saw a sell-off on account of weak global cues, which in turn were on account of geopolitical tensions surrounding North Korea. The sell-off was more pronounced as FPIs continued to pull funds out in a reaction to the political tensions and recent revision of China’s sovereign rating. However, given the strong fundamentals and growth expectations of India and the Indian market, we expect the market to bounce back and resume its upward journey,” said Nitasha Shankar, head of research, YES Securities.

However, there are some who feel that the market is concerned more on the domestic front. “The North Korea issue has been going on for some time. I think the fall in the market over the past 10 days is more on account of concern over domestic economic fundamentals and has less to do with geo-political concerns. Whether it will continue to impact the market going forward will depend on the collective steps being proposed by the government,” said CJ George, managing director, Geojit Financial Services.

Domestic institutions continue to remain bullish


Even as the FPIs sold equities worth a net of Rs 4,293 crore during the seven-day period, the domestic institutional investors have retained their faith on the Indian market and invested a net of Rs 7,211 crore in the same period. While the inflow is on the back of strong inflow of domestic retail money into mutual funds, that hit a record monthly inflow of Rs 19,515 crore in August, some participants feel that earnings for certain sectors are likely to witness an uptick and there are opportunities in the market to invest. “Even as a section of participants feels that the Indian equity market is overpriced at current levels, there are several sectors in the consumption space that show potential for earnings growth. So, while the broader market may not witness an overall growth, there will be growth in pockets and investors will benefit from them,” said the chief investment officer of a mutual fund (MF) house who did not wish to be named.

He added that factors such as farm loan waiver and marginal rise in inflation

will benefit the equity market in the near term. The strong inflow of domestic money into the Indian equities (through mutual funds) has acted as a strong counter-balance to the FPI outflow in the recent past. Data show that in the first five months of the current financial year, the net inflow of domestic funds into MFs stood at Rs 58,055 crore. Since May 2014, the net inflow into equity schemes amounts to Rs 2,52,585 crore.

Slowdown concerns

While geopolitical concerns have played a big role in the recent volatility, there have been some concerns on the domestic front, too. Some feel that the real concern is on the front of private investment and job creation and for the overall sentiment to rise, the business sentiment needs to be revived.

Steady slide in economic growth over the past eight quarters, speculation over government overshooting its fiscal deficit target and transition pains of the GST roll-out have changed quickly the narrative from India being a fastest growing economy to one in operating below its potential. While the country’s other macroeconomic parameters such as inflation, current account deficit and foreign exchange reserves remain healthy; a slide in economic growth, which began in the September 2016 quarter and continued since then, has led to the conclusion that the slowdown is more prolonged and entrenched than being merely transitory.

Economic slowdown was accentuated by last year’s demonetisation move and challenges posed by the GST roll-out mean that it will take a long time for the economy to come out of the woods.

These domestic factors, along with global events including the possibility of the US Federal Reserve raising its policy rates in coming months and the tension of a likely escalation of conflict between the US and North Korea, have disrupted the unquestioned bull run in the Indian market.

“The small scale industry is worried a lot today and instead of focusing on their investments and business expansion, they are busy putting their house in order and to prove that they are not guilty. They are busy preparing response to queries raised by IT department,” said the source. It has dented the overall business environment, he added.