If Street signals are anything to go by, then caution should be the investment mantra for the moment.
With the Sensex plunging 769 points, or 4%, to a four-year low on Friday and the rupee hitting an all-time low against the US dollar, experts are advising investors to tread with care.
The factors that hit sentiments last week — concerns over the continuity of US Federal Reserve's stimulus measures that would restrict cash flows to emerging markets such as India, uncertainty over investments by foreign institutional investors (FIIs) and fears of capital control-like measures choking investments in India — are likely to play out this week as well, said analysts.
“The stimulus withdrawal in the US will be a major factor guiding the markets,” said Mehraboon J Irani, head, private client group, Nirmal Bang Securities. FIIs would withdraw money from India and all emerging markets in a big way, he added.
FIIs have pulled out $11.4 billion from the markets since May.
Moreover, while the US economy is showing signs of recovery, India is feeling the growth pinch.
While consumer price-based inflation rose to 9.6% in July from 9.3% in June, wholesale price-based inflation grew to a five-month high of 5.79% in July.
“In the last five to six weeks data from the US has been coming out strong, in contrast to India’s macro numbers. FIIs are therefore getting jittery,” said Sachin Shah, fund manager, Emkay.
The rupee's continuous slide, too, has been a major culprit.
With some seeing 60 to the US dollar as the new normal for the Indian currency, the outlook is shaky in the near-term.
“Until the rupee stabilises there will be no stability in markets,” said Gautam Trivedi, MD, Religare Capital Markets.
Caution, therefore, is key.
“Avoid the markets until they stabilise,” said Shah. Irani seconds it. "The investor should keep away from the markets.”
And if you are still looking to invest, look at defensive sectors such as FMCG, pharmaceuticals and select information technology shares, said Jayant Manglik, president, retail distribution, Religare Securities.