Worried about the market crash? Here's how analysts interpret the fall

A sharp crash in the US markets in the overnight session spilt over to other Asian markets too on Friday, with India being no exception.

Both the benchmark indices BSE Sensex and NSE Nifty witnessed a nearly 3 per cent crash, forcing investors to scurry for cover. Financials, Reliance Industries (RIL) and tech majors TCS and Infosys were among the top drags. Marginal gains in select pharma names, however, cushioned the fall to some extent.

The market breadth was in favour of the bears with the advance-decline ratio at nearly 1:2, implying that one share rose for every two that fell. Meanwhile, the market capitalisation of the BSE-listed companies was eroded by Rs 4.5 trillion.

Moreover, the volatility ran high with India VIX rising 23 per cent to 28.08 level.

What really triggered the crash, should you be worried and what next for markets now? Here's what top market mavens are saying:

Gaurav Dua, SVP, Head - Capital Market Strategy at Sharekhan

Reason behind crash: Weakness in the global markets, amid rising in bond yields, seems to be the reason behind the market crash today. Globally, the economic growth in improving and that is leading to the hardening of bond yields and some volatility. However, central bankers will keep coming in and try to soothe the nerves of market participants and calm bond yields. This is a trend, I believe, that will keep happening for the entire year.

Market outlook: In the short-term, hardening of yields will lead to some volatility but it should not be a concern for the medium-term outlook because in the past we have seen that rising bond yields are an indication of a better growth outlook and that is actually good for the equity markets.

Investment Ideas: We believe from here, public sector companies will provide better returns. Also, midcaps and broader markets will outperform the benchmark indices. Lastly, companies that will benefit the most from the rollout of PLI schemes will gain going ahead.

G Chokkalingam, Founder and CIO at Equinomics Research

Reason behind crash: The global cues are driving the markets lower on Friday amid concerns about rising bond yields. These periodic corrections of 2-3 per cent are good. A lot of stocks were trading above their fair value.

Market outlook: Till June-July, there will not be any crash in the market and a correction of 3-5 per cent is what's only possible. This is because the rupee is likely to appreciate and the economy is recovering. Besides, the low-base effect will help ensure excellent year-on-year profit growth for the March and June quarter.

Moreover, $20 trillion of fiscal and monetary stimulus will drive FDI flows and PE funds to India. In the last five-years, PE funds bought unlisted shares but now they find the mid and small-cap space so attractive that they have started buying the listed shares as well. Markets can fully recover from today's crash.

Impact of bond yield: Strengthening of yield, undoubtedly, will be risky for global markets. Indian markets, however, will outperform. Moreover in India, retail investors don't bother much about fixed security returns. Post-March 2020 crash, we have seen abnormal returns from the equity segment. Bank deposits going from 5 per cent to 6 per cent, or even to 8 per cent will not influence retail investors to shift away from equity.

Siddhartha Khemka, Head-Retail Research, Motilal Oswal Securities

Reason behind crash: The negative global cues, due to rising bond yields, is what's behind weakness in the market today. For last 8-9 months, we have seen a low-interest rate regime that has lead to super-strong equity flows into equity. But now bond yields are rising, indicating interest rates might go up. Secondly, rising commodity prices is another risk as it could lead to higher inflation which in turn hints at an increase in interest rates to control inflation. Any risk at these levels (post-linear gains) becomes a factor to book profits.

Market outlook: If corporate earnings continue to grow over the next 2-3 years, the markets will go up. A lot of near-term earnings growth are factored in but any positive surprise can support the markets. Right now, I don't see rising bond yields and commodity-led inflation becoming a big cause of concern to long-term growth prospects but should be seen with some cautiousness.