Market correction: Nifty has support at 8200, say analysts

Market rally came to an abrupt halt on Monday with the S&P BSE Sensex and the Nifty 50 indices losing over 1.5% each in morning trade, in line with global peers. While the S&P BSE Sensex slumped over 500 points to hit an intra-day low of 28251, the Nifty 50 hit a low of 8,699. However, they recovered some of the lost ground by late morning deals.

Asian shares followed the US markets finish on Friday, amid concerns central banks will become less accommodative. Sentiment was also dented after North Korea conducted its fifth and most powerful nuclear test on Friday, amid geopolitical tensions in the region at a time when global investors are grappling with slowing global growth.

“I think there were repeated warnings given the bond yields globally. Given the current level and the likely trajectory (of bond yields), we do expect some correction in the markets from here on. Having said that, the correction / trend reversal can happen very swiftly,” says Vaibhav Sanghavi, managing director, Ambit Investment Advisors.

Foreign portfolio investors (FPIs), according to NSDL data, have pumped over Rs 38,000 crore in the equity segment thus far in September. As a result, the benchmark indices have risen nearly 1%, buoyed by liquidity.

So will this momentum sustain, or will the bears tighten their grip on the markets in the days ahead?

“Global markets are worried about the possibility of rate hike by the US Federal Reserve (US Fed) in its upcoming meeting in September. Over the last three months, there has not been much movement in the US markets, and most emerging markets have performed in line. Given the probability of a rate hike by the US central bank, we are seeing a risk-off in asset classes across the globe. The road ahead for the markets now will depend on global developments,” says Tirthankar Patnaik, India Strategist at Japan-based Mizuho Bank.

Analysts say that the road ahead for the markets will depend mostly on global factors. Though the ‘India story’ still remains strong and a favourite among global investors, a risk-off may see a flight of capital in the short-term.

Analysts at Morgan Stanley, however, believe the risks of a US Fed hike this year are manageable, and would be more concerned that the European Central Bank (ECB) disappoints dovish expectations. 

“Our forecasts continue to expect developed markets and China growth to disappoint, with the rest of emerging markets (EM) doing relatively better,” Morgan Stanley says in a report.

Even if the US Fed were to hike rates in September, Patnaik of Mizuho Bank expects a knee-jerk reaction in the markets, but I does not see the Nifty 50 index dipping below the 8,200 levels. 

“I believe investors will start to get constructive on the markets around those levels. Having said that, there are concerns about the Indian markets being richly valued at the current levels. So, one can expect money moving out of sectors like banking, cement and getting deployed in the defensive plays like fast moving consumer goods (FMCG), pharmaceuticals and information technology (IT),” he adds.