‘The stock markets will go through one more steep fall, but it will be the last’

• Indian benchmark index Sensex has fallen around 8% in 2022 so far, three times less than the US markets that tumbled 26%.
• Analysts believe that there is a lack of investor confidence in the market as large investors like foreign institutional investors (FIIs) are constantly selling.
• The impact of massive selling was not deadly as domestic investors like mutual funds bought Indian equities fearlessly.

Indian equity markets have been through their share of volatility in the past few months. But the worst is not behind them, as per this equity market expert. It may experience one more steep fall but it could be the last such in the near future.

“Amid the volatility, few sectors like FMCG, auto have already corrected since they can pass on rate hikes to customers. So stocks of these companies are now moving up. Broader view is we may see one more fall in the market which may be the last,” Shrikant Chouhan, head of equity research (retail) at Kotak Securities told Business Insider India.

Covid 19 and Russia-Ukraine war exacerbated global supply chain disruptions which has spooked inflation levels globally. The US annual inflation is at a 41-year high, and the UK inflation hit a 40-year high.

India’s retail inflation rose to 7.79%, well above the RBI inflation level target of 4%. Indian benchmark index Sensex has fallen around 8% in 2022 so far, which is thrice less than the US markets which tumbled steeply at 26% – making Indian markets one of the better performing equity markets in the world.

“The only concerning factor in the market is rising crude oil prices and the government is taking some steps to find the solution,” Chouhan said.

FIIs are leaving but domestic investors hold steady
Experts believe that there is a lack of investor confidence in the market as large investors like foreign institutional investors (FIIs) are constantly selling. Foreign investors have pulled out money for consecutive six months -- ₹1.87 lakh crore -- from the Indian markets including equity, debt and hybrid assets.

Meanwhile, the government tries to focus on the bright side of the situation where retail investors are heroes of the market.

“FIIs and FPIs may come and go but today Indian investors have proven even if they come and go, any shock that may come is now taken care of because of the shock absorbing capacity Indian retail investors have brought into the Indian market,” said Finance Minister Nirmala Sitharaman, during a question hour in Lok Sabha.

Chouhan too agrees with the FM’s statements. “There is no confidence in the market as FIIs are constantly selling although domestic investors are buying, providing some relief,” he said.

The impact of massive selling was not deadly, as domestic investors like mutual funds, who handle majority funds by retail investors, bought Indian equities fearlessly. This is because retail investors also did not stop investing in mutual fund schemes despite some corrections.

Commenting on the sectors that would be affected by the recent interest rate hike by the central bank, Chouhan points to the real estate sector, whose business relies on affordable home loans.

“The hike in interest rates by the central bank was known to the street. While credit offtake is not as high as it was a few years back but no doubt that the real estate sector is doing well since the last few months. It is not going to impact so badly but the developers will show decline in numbers in coming months,” he said.


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