The Indian stock market has been experiencing a rollercoaster ride in recent days, with significant fluctuations in the benchmark Nifty 50 index. After a rise of over 1 per cent that ended a three-day losing streak, the market saw a nearly 1 per cent drop during intraday trading on Thursday, August 8. This trend reflects a mix of buying on dips and profit booking at higher levels, driven by heightened geopolitical tensions and concerns over US economic growth.
One of the key factors contributing to market nervousness is the diverging monetary policies of major global central banks. While the US Federal Reserve recently maintained a status quo on policy rates in July and hinted at potential rate cuts in September, the Bank of Japan raised interest rates, triggering a reverse Yen carry trade and causing a sharp selloff in stocks.
On the domestic front, the Reserve Bank of India (RBI) decided to maintain a status quo on the repo rate for the ninth consecutive time on August 8. The central bank kept its growth and inflation forecasts for the current financial year unchanged but highlighted the persistent concern of rising food inflation despite a significant fall in core inflation. The RBI did not provide clear signals regarding future rate cuts.
Experts suggest that the RBI is unlikely to cut rates before the Federal Reserve does, given the still-elusive 4 per cent inflation target. If the Fed initiates rate cuts in September, as expected, the RBI may consider a rate cut in October. Some analysts even predict rate cuts in the fourth quarter of FY25.
In the midst of this market volatility, investors are advised to tread cautiously and navigate the fluctuations wisely. The fear indicator India VIX has surged by 25 per cent in August, indicating high market volatility. It is anticipated that the Indian stock market will remain volatile this year, reacting to macroeconomic indicators, global cues, central bank actions, and news related to the upcoming US Presidential election.
Despite the short-term volatility, the medium-to-long-term outlook for the domestic market remains positive due to healthy macroeconomic growth prospects, a strong influx of retail money, and a favorable policy environment. Experts recommend using market corrections as an opportunity to add quality stocks to one’s portfolio.
Kunal Mehta, Associate Director at Equirus, suggests making volatility a friend and taking advantage of market corrections to enter the market. He advises keeping around 10-15 per cent cash at the current elevated market levels. Mehta also points out that the correction in commodities and good rainfall in India could help rein in inflation and pave the way for RBI rate cuts in the future.
Abhishek Jain, the head of research at Arihant Capital, believes that volatility will persist until November, especially with the upcoming US elections. He recommends booking profits at current levels and staying on the sidelines or opting for large-cap instruments. Jain also expects sectors like pharma and agriculture to outperform in the current scenario.
Narinder Wadhwa, Managing Director & CEO of SKI Capital, emphasizes the importance of diversifying investments across various asset classes to reduce risk in the volatile market. He suggests investing in fundamentally strong companies with robust business models and consistent earnings for the long term. Wadhwa advises maintaining a long-term investment perspective and considering staggered or systematic investment plans to mitigate the risk of market timing.
In conclusion, while market volatility may be unsettling, it is essential for investors to stay informed, consult certified experts, and adopt a balanced approach to navigate through the fluctuations. By staying diversified, focusing on quality stocks, and maintaining a long-term perspective, investors can weather the storm and capitalize on opportunities in the market.