Indian equity markets, which have been going through one of their longest losing streaks in recent history, might see some respite during the week as domestic institutions accelerate their buying activity. Experts, however, say any upswing would be temporary as global sentiment remains extremely negative. The expiry of derivative contracts during the week would add to the volatility, they say.
According to provisional numbers, domestic institutional investors have net bought equity shares worth Rs 6,719 crore in the current month, even as their foreign counterparts have sold shares worth nearly Rs 9,000 crore. A section of analysts feels the recent correction has made equities an attractive proposition.
“The market is looking good at these levels as the final capitulation seems to have happened,” says Sandip Sabharwal, CEO-PMS, Prabhudas Lilladher. “This week’s closing could remain the lowest weekly closing in the next few months as the markets look oversold. Safety assets like gold and US Treasury bills look extremely overbought. And volatility indices in the US and Europe have spiked up. All these factors hint at a bottom formation,” explains Sabharwal.
Last week saw the benchmark Sensex fall below the 16,000-mark for the first time in nearly 15 months while the broader Nifty — an important barometer for technical and derivative analysts — closed below the 4,900-mark. Technical analysts, while agreeing the Nifty has been breaching crucial support levels in the recent past on account of global worries, say buying support could be expected at the current levels, which will provide resistance to further falls.
“It is not the time to look at technical indicators but to go for value buying,” says Deepak Mohoni, managing director, trendwatchindia.com. “You might lose 1,500 points by the time you confirm a bull rally through technical indicators. It is a good time to pick stocks.”
Meanwhile, data from EPFR Global show outflows from emerging market equity funds slowed during the week ended August 17. The outflows still came in at $2.77 billion, with Asia ex-Japan equity funds accounting for half. Further, 19 of the 25 major equity, bond and sector fund groups tracked by EPFR Global posted outflows.
Adding to investor worries is the fact that US economic growth for the first quarter was revised down to 0.4 per cent, while the second quarter’s initial figure was 1.3 per cent. Federal Reserve chairman Ben Bernanke is scheduled to speak at the central bank’s annual meeting this week.
In Europe, gross domestic product fell from 0.8 per cent in the first three months of the year to 0.2 per cent in the second quarter. Reports suggest the European Commission estimates the region’s banks will have to raise about $600 billion to comply with the new capital rules. Banks, on the other hand, say that will harm their ability to lend at a time when economies are flailing.
While analysts feel the focus would be on global events, they do not rule out a combination of domestic factors also playing an important role in deciding investor sentiment.
“Going into the next week, the focus would be on global markets,” says Sanjeev Zarbade, vice-president (private client group research), Kotak Securities. “Closer home, there is uncertainty on the passage of various reforms, despite the fact that the government has lined up a few of them for the Monsoon session. Consequently, market expectations are low regarding the passage of key reforms in the immediate term,” he says, adding investors can consider current valuations for long-term investing.