Updated: October 28, 2021 6:29:51 pm
Having witnessed sustained weakness over the last seven trading sessions, markets fell sharply on Thursday. While the benchmark Sensex at BSE fell 1.9 per cent or 1158 points to close at 59,984 on Thursday, the broader Nifty at NSE fell 1.94 per cent or 353 points to close at 17,857. While this is the biggest Sensex fall in a day since April 30, 2021, market participants say that the fall could get deeper over the next couple of weeks and investors should avoid panic selling and seek professional advice.
Why have the market turned weak?
The markets have traded very strong this calendar year despite the second wave of Covid and concerns over its impact on the economy. High liquidity in global markets, better earnings growth and hopes of stronger growth in the Indian economy took the markets to new highs. Since January 1, 2021, the Sensex has risen around 27 per cent and since August 1, it is up over 15 per cent.
If the continued rise in the markets across market capitaisations has now led to a situation where the stocks have turned expensive on valuation front leading to some discomfort among investors and market participants, the Thursday’s fall would unnerve sentiments of a large number of investors who entered the markets over the last six months to a year.
Even the recent investment pattern of foreign portfolio investors suggest that they are reducing their holdings. Over the last six trading sessions, FPIs have sold domestic equities worth Rs 12,866 crore.
In a recent report released on October 23, 2021, Nomura Global Market Research announced to downgrade India equities from overweight to neutral in regional alocation. “We now see an unfavourable risk-reward given valuations, as a number of positives appear to be priced in, whilst headwinds are emerging,” said the report prepared by its equity strategists Chetan Seth and Amit Phillips.
Will the correction be deeper?
While the markets have fallen 3.6 per cent since the high of 62,245 it hit last week, market participants say that the correction could go up to 10 per cent in the large cap index and could be up to 15-20 per cent in the mid and small cap indices.
If FPIs continue to reduce their holdings in Indian equities, the fall will only get deeper for now.
There are also concerns over how the FPIs may react following the tapering of the bond purchase programme by the Federal Reserve, beginning next month. While global liquidity has been one of the primary drivers of markets to these levels, a withdrawal of liquidity may lead to some outflow and thereby correction in the markets.
Should you sell?
Long term investors should continue to hold their investments as market participants feel that the long term fundamentals remain strong and the equities will do well over 3-5 year investment horizon.
Even Nomura, while downgrading Indian equities to neutral, said that it “will look for better entry points given our still-constructive medium term view.”
Newsletter | Click to get the day’s best explainers in your inbox
This means that while it may be booking some profits and moving out for the time being to better valued markets, it will make a comeback after the correction.
The CEO of a leading mutual fund told that investors should not look to panic and sell. “They must stick to their investments as markets will bounce back after some correction,” he said. He added that even domestic traders and market participants look to book some profit ahead of Diwali and that also adds to the decline.
While new investors who are underweight equities should continue with their investments, experts say that investors who are overweight equities now (foloiwng the sharp rise in equities over the last one year) should move some of their investments to hybrid funds in order to rebalance their portfolio. They may also look to reduce their exposure in mid and small caps and move to large cap funds or companies.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines
- The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.