Indian equities have been lacklustre for the last few sessions, enduring bouts of volatility amid concerns of rising bond yields, inflation and a sudden spike of COVID-19 cases in some states.
Equity barometer Sensex has been ending in the red for the last three trading sessions and if it closes in the red today, it will be its fourth consecutive day of losses.
However, on a monthly basis, it is still up about 2 percent in March so far.
The market is cautious ahead of the US Fed outcome on March 17. While the Fed is expected to keep the rates low, investors are keen to see Fed’s commentary on the economy and inflation.
“The FOMC meet outcome expected today is likely to have an impact on markets. The Fed is likely to emphasize its highly accommodative stance and signal that inflation is not a concern. That will be positive. Any departure from this stance can be negative,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities pointed out that valuations of Nifty50 are very rich at 22 times on a one-year forward basis that is FY22E but reasonable at 18.6 times on FY23E that is on a two-year forward basis. As time goes, valuations of Nifty50 could keep correcting.
Another factor that has turned out to be a concern is rising bond yields globally. The US 10-year yield, firm at around 1.62 percent, is keeping bulls down.
“The rise in bond yields raises the cost of capital for companies, which, in turn, affects their stock valuations. Hence, stock markets across the world are seeing some impact of increasing bond yields,” Harshad Chetanwala, Co-Founder, Mywealthgrowth.com, pointed out.
“If central banks allow the yields to go up, it indicates that the liquidity support that has been offered may also go down. Whenever the bond yield increases, investors including FII, prefer to withdraw from equities and look at bonds,” Chetanwala added.
Long-term outlook still bright
Despite short-term volatility, the long-term prospects of the Indian market is bright owing to economic recovery, abundant liquidity and strong quarterly earnings of India Inc.
“Markets seem to be digesting the recent gains and waiting for the next triggers. Earnings were solid and commentary was optimistic as well. Growth rebound in the economy, as well as earnings, augur well from a medium-term perspective,” said Gautam Duggad, Head of Research at Motilal Oswal Institutional Equities.
Brokerage firm Prabhudas Lilladher pointed out while the market’s long-term trend remains intact, Nifty is facing resistance at 15,200 currently and a break of 14,700 would call for further correction, maybe up to 14,000-13,800 levels, while a decisive move past 15,200 can result in further high of 15,500-15,800-16,000.