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Volume IconMarket strategy: Buy in the dip or sell when the markets rally?

Despite several attempts, the indices have succumbed to global and domestic cues. Should you use the current market fall to buy for long term? Are the markets discounting the rate hikes by the RBI?

ImagePuneet Wadhwa New Delhi
Illustration: Ajay Mohanty

It has been a choppy ride for the markets over the past few weeks. Despite several attempts, the indices have failed to cling to the gains, and succumbed to global and domestic cues.
Analysts expect the markets to remain choppy in 2022. But there would be ample stock-specific opportunities all through the year, they suggest.

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However, analysts caution that timing the markets will not be a wise strategy at the current levels given the slew of domestic and global developments over the next few weeks.
For instance, geopolitical developments related to the Russia-Ukraine war and its implications in commodity markets, especially oil and gas, will keep the global markets volatile. At home, the Reserve Bank of India’s plans to hike rates may not have been fully discounted yet by the markets.
 
Sonal Varma of Nomura, meanwhile, says she expects a 50bp hike in June, and 35bp in August; and a terminal rate of 6.25 per cent by April 2023. However, rising fiscal risks will likely complicate the RBI’s liquidity withdrawal strategy.

Thus far in 2022, the S&P BSE Sensex and the Nifty50 have lost around 7 per cent each.
The correction in the mid-and small-caps has been even sharper, with both the indices slipping 10 per cent and 11 per cent, respectively, on the BSE during this period.

In the past week, however, there has been some pullback as the S&P BSE Sensex and the Nifty50 moved up nearly 2.5 per cent each amid volatility.
Analysts believe, the recent pullback may still have some steam left.
 
According to ICICI Securities, the current recovery for the Nifty may extend towards 17,000 levels. However, 15,600 will remain a very crucial level to watch out for.

As regards inflation, analysts believe the government’s measures to cut excise duty on petrol and diesel and measures to bring down the cost of cement and steel will be beneficial. Yet, inflation could remain substantially above the RBI’s target range of 2 to 6 per cent.

On the contrary, any correction in oil and commodity prices might allay the inflation fears to some extent and present the trigger for an up move in the markets.
Sunil Singhania of Abakkus Asset Manager, on his part, believes the inflation has peaked.
 
If our view on oil, commodity and inflation does come true, then there might be a surprise of interest rising less than expected, says Singhania. Any such possibility can be a key catalyst for a risk-on and positive for equity markets, he says.
 
With fundamentals continuing to be strong for India and now valuations also in line with 10-year averages, Singhania believes the risk-reward for investors is only getting better. The asset manager continues to remain constructive on the markets.  

On Friday, the markets are likely to remain choppy in a range as they track domestic and global cues. Stock-specific action, however, will continue.

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First Published: May 27 2022 | 7:00 AM IST

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