Current fall, a healthy correction, say experts

After going up sustainably for a long period and hitting fresh highs, Indian equity markets took a breather last week and gave in to the bears amid volatility. Both international and domestic events such as the emergence of geopolitical tensions, disappointing rainfall data by India Meteorological Department, selling by foreign institutional investors and concerns of burden on fiscal deficit due to GST have been some of the key reasons for the 3 per cent correction. However, investors should see this as a healthy correction and continue to invest into Indian equity markets, say experts.

“The market was looking for a reason to correct. Global factors such as geopolitical tensions, the US dollar strengthening and the second straight month of selling from the FPI/FII segment played their roles. It would be one where one “buys on dips” rather than sell into them,” saidKunj Bansal — Executive Director & CIO — Equity, Centrum Wealth Management.

His view matches with the consensus, which believes that Indian equity markets will resume stability and again move up due to a variety of factors in favour of an upside.

Important ones among them are the upcoming festival season, low base of the second half of FY17, the government’s likely economic stimulus measures and ample liquidity in the system. Strengthening of the dollar and the resultant impact in terms of fall in commodity prices will also benefit the Indian economy.

In a strategy note, ICICI Securities has pointed out that the equity bull market is intact and Indian equities are currently in a consolidation/ bull market correction phase.

Consumption-driven companies are better placed than cyclical ones as foreign brokerage firm UBS does not see industrial and capex recovery in the near term. On the other hand, it has observed that consumption data has been steady and supported by rural economy. Plus, the consumption companies are likely to see good demand on account of festive season.

“Wholesale volume growth for cars has been strong recently… Two-wheeler volume growth has also picked up. Passenger air traffic remains fairly strong… Personal loan growth remains lower than its pre-demonetisation level. Rural economy signals remain positive, with double-digit tractor sales growth (ex-June dip) and relatively elevated rural wage growth in real terms,” UBS said.

While the US Fed’s decision of winding down its $4.5-trillion balance sheet in October will limit global liquidity and in turn flows to emerging markets, structural shift in retail participation in equities will help cushion the sharp fall in Indian stocks arising out of drying up of any global money flows.

Foreign institutional investors have sold close to ₹13,000 crore in August (first time after January) and further ₹6,700 crore till date in September, domestic institutional investors have been big buyers with purchases worth ₹16,000-odd crore and ₹10,000-odd crore, respectively.

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