It has been a rollercoaster ride for the markets thus far in calendar year 2018 (CY18). Amid intermittent bouts of recovery marked with volatility, the S&P BSE Sensex at 33,129 levels has corrected around 9 per cent from its record high level of 36,444 touched on January 29, 2018 in intra-day deals.
The fall in the mid-and small-cap segments has been sharper with the S&P BSE Midcap and the S&P BSE Small-cap indices slipping 13 per cent and 14 per cent, respectively, from their peak levels hit in early CY18.
So, are we gradually heading towards a bear phase? Typically, markets are said to be in a bear grip when the indices fall 20 per cent or more from their peak levels. And, we have already covered half this distance.
While most analysts do see the markets remaining volatile and possibly extending their fall over the near-to-medium term given the events stacked up going ahead, they however, rule out a sharp correction for now from here on that can put markets into bear terrain.
“The market rally in January was very sharp and unanticipated. Such moves are magmatic and create lot of froth. The fall from the peak needed some reason. Public sector banking accident was sudden, killed the buoyancy in the market and paved the way for a correction that was overdue. We think this fall, at worst, can see the Nifty50 dip another 3 – 4 per cent from current levels. But, it may be time consuming and will test investor’s patience,” says Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services.
Threat of global trade war given the tariff proposals by the Trump administration, possibility of hike in interest rates by the US Federal Reserve (US Fed) and its impact on the bond markets are the two global risks that the markets are staring at over the next few months.
That apart, government’s borrowing programme (likely to be announced in April); key economic data, including interest rate trajectory and inflation; progress of monsoon; outcome of various state elections over the year and developments in the banking sector are some of the key events markets will have to negotiate through over the next few months.
“We can’t rule out a further fall that can take the markets into bear territory. But, that is not our base case. We see support at around 9,700 levels (Nifty50). That said, there is a 40 per cent probability right now that this support will be taken out. It can happen in case economic and corporate earnings growth disappoint. One also needs to watch oil prices, interest rates and developments in the banking sector,” says UR Bhat, managing director, Dalton Capital Advisors.
As regards the mid-and small-cap segments, G Chokkalingam, founder and managing director at Equinomics Research believes that the correction in these two segments is not yet over. “Minimum another Rs 4-lakh crore may be wiped out from the overall market due to further correction in the over-valued small and mid-cap (SMC) stocks,” he says.
Though markets at the current levels are factoring in the possibility of inflation inching up and the possibility of rate hike by the Reserve Bank of India (RBI) over the next few months, they are not factoring in a bad monsoon yet, analysts say. Banking stocks, they believe, still remain the weakest link in the markets.
Oswal suggests March quarter earnings will be a big trigger for market recovery, as the economy is already on the mend. “We think around 10,000 mark on the Nifty 50 index and 31,000 level on the S&P BSE Sensex will be good level to commit money in the market,” he adds.