Not the right time to get in the market, is what experts say after the market fell by 3 per cent during Monday’s trading session to close at 15,066. The markets have been under pressure and have fallen by 5.6 per cent or almost 900 points since Wednesday after the oil price hike was announced.
Experts feel that the current fall is not the end; there is much pain left in the market. “We considered 15,300 as a key resistance level for the Sensex and breaching that level means a downward risk for Sensex,” said Aseem Dhru, managing director and CEO, HDFC Securities. “It’s not going to recover soon and volatility will prevail which suggests that retail investors should stay away.”
The rising global crude oil prices that touched a high of $139 on Friday saw Dow Jones losing 3.1 per cent to close at 12,209 on Friday. This was followed by the fall in Asian markets, which led to Sensex losing 506 points. While the fall in global markets, triggered by unemployment rate rise in the US, has been reflected in India, the bigger reason here is the expectation of a slower growth in GDP and corporate profits during 2008-09.
The situation of instability and volatility driven by global crude oil price is affecting the Indian economy in a big way. This is because, howsoever fast an economy grows, it cannot delink itself from rising oil prices. The market is anticipating a slowdown in growth of the corporate profitability and expects tough time ahead for Indian companies.
“June and September quarters are going to be the most challenging ones on corporate performance that we have seen in the past five years of economic boom,” said Ketan Karani, vice president (research), Kotak Securities. “Growth will weaken and GDP should falter.”
With no clarity on GDP and corporate profit growth, investors should consider not entering the market in the current volatile situation. “The market is not sure of the fundamental growth this year because inflation and high oil prices will have their impact on growth,” said Amitabh Chakraborty, president (equity). “We thus advise investors to be on the sidelines.”
There are hardly any positives in the market in the current scenario. The inflation rate is high and rising, currency is weak, input costs are going up, interest rates are expected to be hiked shortly, economic growth is slowing down and all factors have shaped up against the market for the near term. “We see more downside than upside in the shorter term and retail investor should wait for things to get clear,” said Chakraborty.
In the current situation institutional investors, foreign institutional investors (FIIs) and high-net worth individuals are keeping themselves away from the market, he added. Retail investors, therefore, should have a wait and watch approach. “Only post-October will we see some stability coming in and then only investors should consider entering the market,” said Dhru.
While the current volatility continues and clarity on corporate profits growth is unclear, existing investors can continue to hold their long-term investments. Timing the market is next to impossible. “Nothing except inflation riding on crude oil prices has changed,” said Surya Bhatia, a Delhi-based financial planner. “Long-term investors in my view should stick to their portfolio and continue with their systematic investment plans on mutual fund investments.”
Direct equity investment is the key and is to be strictly avoided say experts. If an investor still wants to enter and take advantage of the situation, “it has to be large cap, blue chip stocks which are strong fundamentally and have low downside,” said Bhatia.