Market falls 4% in just seven sessions: Is it a good time to buy?

Markets have been on a downward spiral since August 2 when the Nifty50 hit a high of 10,137 levels in intra-day deals. Since then, the index has tanked nearly 4%, or around 400 points to 9,737 levels in intra-day deals on Friday. 

The recent fall has been triggered by rising geopolitical tension across the globe – one, between India and China on the Doklam standoff, and two the developments with North Korea and the United States.

“Clearly, the markets have been rattled by the geopolitical developments, especially relating to North Korea and the US. One needs to keep a tab on the situation, though I feel things can cool off over the next few days. The markets are completely dependent on how the rhetoric plays out,” explains U R Bhat, managing director, Dalton Capital Advisors.

That apart, Sebi’s order to ban trade in 331 suspected shell companies, sub-par second quarter results of select index heavyweights and the possibility of downside risks to the earlier growth forecast of 6.75 - 7.5 per cent for FY18 as highlighted by the Economic Survey on Friday were some of the other factors that have triggered the fall.

Given the developments, analysts say there could be more pain in store for the markets that have recently taken cognizance of the developing geopolitical situation. Though they do not wish to predict how deep and long this correction could last, experts do caution that the fall is beyond anyone’s control as it is driven by geopolitical reasons.

“Global events that are beyond market control have triggered the recently fall. If there is more action over the weekend, the markets will continue to fall in the coming week as well. A lot depends on the geopolitical front and to that extent predicting the road ahead for specific index levels is risky,” says Jayant Manglik, president - retail distribution at Religare Securities.

Since its recent high on August 2, investor wealth as measured by market-capitalisation (market-cap) of the BSE listed companies till August 11 has dipped by over Rs 5.47-lakh crore, data show. 

So, should you use this market correction to buy? 

Experts don’t think so.

Manglik, for instance, does believe that though the fall will present an opportunity to buy, but buying in the middle of a storm is not advisable. Investors should wait on the side-lines before making a fresh investment, he says.

Others such as Gaurang Shah, head investment strategist at Geojit Financial Services prefers a staggered investment approach. “Invest 20% of the investible corpus now and then invest more it if the market falls further,” he says.

From a long-term perspective, however, analysts do remain bullish on the markets despite the ongoing geopolitical tensions and high valuations. Fundamental transitions and lining-up cyclical drivers will raise the valuation framework till the gains actually play through, they feel. That could be in the next three years and the market is likely to trade at a 0 – 25% premium to average multiples of 16-20x PE. 

“Valuations will revert, but only once growth (economy and earnings) and returns (RoCE, RoE) settle higher, and interest rates settle lower. Till then, India will trade high. We see the market at 11,100 in June 2018—at 19x 1-year forward—higher-end of the 16-20x market range we forecast over three years,” writes Aditya Narain, head of research for institutional equities at Edelweiss Securities in a co-authored report with Prateek Parekh and Akshay Gattani.

Their overweight sectors include banks & financials, consumer discretionary/durables, cement & construction.