More pain in the offing for equity markets

Investors, however, need not shun them altogether

Salil Panchal
Published: Jan 22, 2016 03:17:08 PM IST
Updated: Jan 22, 2016 07:18:40 PM IST
More pain in the offing for equity markets
Image: Shailesh Andrade / Reuters
People watch a large screen displaying India's benchmark share index on the facade of the Bombay Stock Exchange (BSE) building in Mumbai, India, January 20, 2016

There could be some more pain for India’s equities markets, as global sentiment across stock and commodity markets continues to be weak, fuelled by fears of a slowing global economy and weak oil prices. But some suggest that investors need not completely shun the equity markets at this stage, advocating an entry through systematic investment plans and balanced funds.

On Friday, Indian shares rebound 1.98 percent to 24435.66 points, but this was largely seen as a temporary pull back. Steel, automobile and engineering stocks which had been battered earlier were gainers.

Earlier this week, India’s benchmark 30-share Sensex index fell below the psychologically key 24,000 points level on January 20. From its intraday low of 23,839.76 on January 20, the Sensex index has lost about 20.59 percent from its lifetime high of 30,024.74 struck on March 4, 2015.  

The Indian rupee also slid to a two-year-low of 68 to the US dollar.

“The economy is in a far worse shape than we realise. We think that until the Sensex does not get to the 22,000 points level, it is not a buyable market,” says Saurabh Mukherjea, CEO (Institutional equities) at Ambit Capital. He cites slowing economic growth and a stressed banking system (in terms of bad loans) as factors which could make for a challenging 2016.

“Good companies are becoming cheap and at 22,000, the market will become cheap enough for long-term investors to start buying.” But Mukerjea said investors should not expect miracles if the market gets to the 22,000 levels.

The Reserve Bank of India, which has started to ease monetary policy, in 2015 lowered its GDP forecast for the Indian economy to 7.4 percent from an earlier project 7.6 percent.  

Factors like increasing capital outflows by foreign funds back to the US, a slow pace of economic reforms, poor exports and poor quarterly corporate earnings have all contributed to a weakening business and investor sentiment in India.

Abhimanyu Sofat, co-founder, investment advisory startup Advise Sure, says that in the past six months, valuations have been stretched and weak hands had entered the markets. “We are advising clients that this would be a time for investors to enter equities through the SIP route,” Sofat says.

He recommended investors to eye balanced funds at this stage, for a longer-term horizon. “Investors need to be patient. We see that investors have a mindset to be patient while investing in the real estate sector, but not in equities.” The only caveat he cites here is that some balanced funds had invested more into mid-cap stocks, which have borne the brunt of the recent fall.

Ajay Bodke, CEO and chief portfolio manager at brokerage firm Prabhudas Lilladher, said the recent “seemingly coordinated” action of central banks like the ECB, Bank of Japan and from China appeared to signal an intention that sharp volatility and asset erosion would not be tolerated.

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