The stock market will remain volatile in the coming days after the benchmark indices crashed nearly 6 per cent on Monday due to both global and domestic factors. So retail investors should trade cautiously, said experts.
“The sustained weakness of the Indian currency against the U.S. dollar is adding to the woes of Foreign Institutional Investors (FIIs). The Nifty is likely to remain extremely volatile in the current week, more so on account of the August series F&O expiry,” said Hitesh Agrawal, Head, Research, Reliance Securities.
Investors should avoid trading in extreme volatile situations, cautioned experts.
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“Short-term market moves are largely dependent on fund flows. A large number of portfolios are designed to reduce exposure during turmoil and a rise in volatility. Therefore the risk of overshooting expected threshold rises in such times. Increased exposure in a more volatile market may expose investors to unwarranted risk and compromise long-term investment,” said Sahil Kapoor, Chief Market Strategist, Edelweiss Financial Services
He said volatility is here to stay but it will create an opportunity for the patient participant looking to benefit from the long term Indian growth. “Therefore it is prudent to let this period of volatility subside and use a less volatile period to build positions,” Mr. Kapoor said.
Some experts have advised traders to focus on less volatile counters to benefit from such a situation.
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“Though it was one of the biggest single day falls in absolute terms as benchmarks slipped almost six percent, the silver lining is that India is better off compared to emerging market countries and there are no apparent domestic factors involved,” said Jayant Manglik, President, Retail Distribution, Religare Securities Ltd.
“However, selling pressure may continue on the stock specific front especially in the midcap and smallcap space as they were hovering around their highs. Ideally, traders should focus on comparatively less volatile counters from the defensive pack and wait for the panic selling to stabilise. Investors can now get quality stocks at bargain prices. For those not fazed by temporary volatility, it is an excellent opportunity to gradually add quality stocks with medium to long-term view,” he said.
Beyond the current sell-off, markets are likely to focus on sectors which benefit on a fundamental basis, said Dipen Shah, Head of Private Client Group Research, Kotak Securities.
“On the macro front, passage of crucial reforms Bills like GST will make India stand out among emerging markets and we need to wait and watch out for the same,” Mr. Shah said.
The disinvestment of Indian Oil Corporation Ltd. also played a role in the market crash and RBI’s intervention in the money market can reverse the trend, felt some experts.
“The two important factors which led to Monday’s chaos is the sharp fall in the rupee due to the increase in risk to Emerging Markets currencies and the high demand to the Offer For Sale of the Indian Oil Corporation requiring a total outflow of Rs. 9,400 crore. The sudden collapse in the developed equity market in the last three trading days due to continued breakdown in Emerging Markets has led to the carnage in India,” said Vinod Nair, Head, Fundamental Research, Geojit BNP Paribas Financial Services Ltd.