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The global financial markets are likely to begin the week on the back foot following Friday’s mayhem.
But the Indian equity market appears to be on a stronger footing, if we go by the strong trading volumes and the relative resilience displayed by the benchmark indices on Friday.
Even as many investors stampeded towards the exit door following the Brexit referendum, many others appeared to have viewed the fall as a buying opportunity.
This resulted in making the volume in the cash and derivative segment on the NSE jump. The traded value in the cash segment on Friday was ₹24,652 crore, 62 per cent higher than the average traded value in the four preceding sessions. Derivative volume was even higher at ₹6,48,200 crore; 136 per cent higher than the average volume of ₹2,74,005 crore clocked in the preceding sessions.
This is a departure from the pattern of volumes recorded during other major events.
Typically investors tend to get nervous and withdraw to the sidelines when prices crash, resulting in thin volumes in such sessions.
When Lehmann Brothers filed for bankruptcy on September 15, 2008, trade value of equities was quite subdued, in line with the average volume of previous sessions. The increase in trade values in the session following the Chinese devaluation on August 11, 2015, was also lower than the recent instance.
Time to bargain-hunt Market experts also view the fall as a buying opportunity. SS Naren, ED & CIO, ICICI Prudential AMC, said: “While it is difficult to predict market movement in the short term, recent correction offers a long-term buying opportunity for investors. We believe Indian equities could do well compared to other emerging markets owing to favourable domestic macroeconomic factors and low crude oil prices.”
Another indication of market strength was the relatively smaller magnitude of the loss recorded by the Indian benchmark indices on Friday. The Sensex plunged as much as 1,091 points in the initial part of the trading session but eventually recovered to end the day around 600 points lower from the previous day’s close. The Nifty too closed just 2 per cent lower.
Other global indices recorded far deeper cuts. The Nikkei for instance lost 7.9 per cent and the CAC and the DAX lost more than 6 per cent on Friday.
In a sweet spot Most fund houses and brokerages have been quick to stress that Indian stocks are much better placed than their global peers.
Deutsche Bank’s equity research division writes that while the external environment may stay volatile in the near term (particularly the high beta portfolio flows), domestic situation is showing strong signs of improvement as evidenced by: (i) improving monsoon rains after a late start, increasing the possibility of a normal monsoon after two consecutive years of poor season; (ii) positive traction in several high frequency indicators; and (iii) continuing positive policy action from Delhi with high expectations of further reform momentum.
Nomura, in its Asia Special Report, wrote: “For India, the economic impact should be small relative to other open economies in Asia. Still, India is not immune, as it has strong trade linkages with the EU and is susceptible to a loss of business confidence and potential tightening of financial conditions.”
The writer is an intern with BL Research Bureau
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