“Stock markets will experience another sharp fall, but it will be the last”

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  • Indian Benchmark Sensex has fallen around 8% in 2022 so far, three times less than US markets which have fallen 26%.
  • Analysts believe that there is a lack of investor confidence in the market as large investors like foreign institutional investors (FII) constantly sell out.
  • The impact of the sell-off was not lethal as domestic investors like mutual funds bought Indian stocks fearlessly.

Indian stock markets have seen their share of volatility over the past few months. But the worst is not behind them, according to this equity market expert. He might experience another steep drop, but it could be the last in the near future.

“Amid the volatility, few sectors like FMCG, automotive have corrected yet as they can pass rate hikes on to customers. So shares of these companies are rising. A broader view is that we might see another market drop, which could be the last,” Shrikant Chouhan, head of equity research (retail) at Kotak Securities told Business Insider India.

Covid 19 and the Russian-Ukrainian war have exacerbated global supply chain disruptions that have spooked inflation levels globally. Annual US inflation is at a 41-year high and UK inflation is at a 40-year high.

Retail price inflation in India reached 7.79%, well above the RBI inflation level target of 4%. India’s benchmark Sensex has so far fallen around 8% in 2022, three times less than US markets which have fallen sharply at 26%, making Indian markets one of the best performing equity markets in the world.

“The only worrying factor in the market is rising crude oil prices and the government is taking steps to find the solution,” Chouhan said.

FIIs leave but domestic investors remain stable
Experts believe that there is a lack of investor confidence in the market as large investors like Foreign Institutional Investors (IFIs) are constantly selling. Foreign investors withdrew money for six consecutive months – ₹1.87 crore lakh – from Indian markets, including equities, debt and hybrid assets.

Meanwhile, the government is trying to focus on the bright side where retail investors are the heroes of the market.

“FIIs and REITs can come and go, but today Indian investors have proven that even if they come and go, any shock that may arise is now taken care of due to shock absorption capacity that Indian retail investors have brought to the market. Indian marketsaid Finance Minister Nirmala Sitharaman during an hour of questions at Lok Sabha.

Chouhan also agrees with FM’s statements. “There is no confidence in the market as FIIs are constantly selling although domestic investors are buying which is a relief,” he said.

The impact of the sell-off was not lethal as domestic investors like mutual funds, which manage majority funds by retail investors, bought Indian stocks fearlessly. Indeed, retail investors have also not stopped investing in mutual fund diagrams despite some corrections.

Commenting on the sectors that would be affected by the recent interest rate hike by the central bank, Chouhan points to the real estate sector, whose business relies on affordable home loans.

“The interest rate hike by the central bank was known to everyone. Admittedly, borrowing is not as high as it was a few years ago, but there is no doubt that the real estate sector has been doing well in recent months. It won’t have such a severe impact, but the developers will show a drop in numbers in the coming months,” he said.

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