Indian stock markets are expected to open on a flat note on Tuesday amid weak global markets. However, analysts expect the market to remain volatile, on a few negative global cues. Valuation of Indian stocks is also at elevated levels, warranting a correction, said analysts.

The NSE’s Volatility Index India VIX on Monday spurted over 14 per cent to 17.49, signalling nervousness and fear among investors withuncertainty.

One of the biggest headwinds for global markets is the trouble at a highly leveraged property giant China Evergrande. The company faces default risk on $80-million bond coupon payment, which is due on September 23.

Amidst heightened volatility, global markets on Monday corrected, fearing the contagion around the Chinese developer. Risk aversion was seen across markets, with domestic chemicals and metal stocks crashing sharply.

Traders also turned cautious ahead of the US Federal Reserve and the ECB meetings this week, awaiting indications as to when the central banks will start withdrawing their monetary stimulus and start raising interest rates.

SGX Nifty points a steady start for Indian markets. AT 8 am, SGX Nifty rules at 17,435 against Nifty September futures close of 17,386.65. Overnight, the US Stocks too slumped by around 1.7-2 per cent. While most Asian-Pacific markets are ruling flat, Japan’s Nikkei is down over two per cent in early deal on Tuesday.

Betting on India

However, what is comforting is that FPIs remained net buyers on Monday despite broad base selling, signalling their faith in the recovery of Indian economy. “We view Indian equities’ high P/E premium as warranted, considering the improving fundamentals, and believe that relative valuations may remain stretched until the earnings catch up. We would expect that a good recovery in the second half of the year should support these seemingly lofty valuations. Hence, we advise investors to stay invested in equities, albeit with reduced portfolio beta,” said Credit Suisse Wealth Management in a report.

According to Goldman Sachs, India’s stock market could grow to more than $5 trillion to become the fifth largest in the world within three years.