Volatility likely to continue next week; analysts advise caution till market stabilises

Foreign institutional investors turned bearish again, withdrawing money from equities and moving debt. Selling was seen across sectors with IT, pharma and some banking names leading the loss chart.

The volatility in the market will likely continue for a while, said analysts, advising them to be cautious.

“Along with global disturbances, the uncertainties regarding the upcoming budget will likely keep the domestic market highly volatile in the coming days,” said Vinod Nair, Head of Research at Geojit Financial Services.

Global equity markets were also volatile on the back of expectations of faster interest rate hikes by the US Federal Reserve, rise in US bond yields, higher crude oil prices and concerns over rising inflation.

Covid-19 cases in India continued to rise at a fast pace as the third wave gained momentum. However, the impact of the third wave, both on the health infrastructure and the economy has so far been relatively muted.

The Q3FY22 earnings, though in an early stage, have been on expected lines. They so far reflect strong demand during the festive period, but the majority of companies are feeling the impact of higher input cost inflation leading to compression in operating margins.

With demand being buoyant, analysts expect companies to pass on some of higher input costs in terms of price hikes over the next quarter so as to protect margins. On Monday, the market will also react to earnings of two heavyweights- Reliance Industries and ICICI Bank.

“Weak global cues are currently weighing on the sentiment and excessive volatility due to earnings is further adding to the participants’ worries. We suggest preferring hedged positions and suggest keeping a check on position size until the market stabilises,” said Ajit Mishra, VP – Research, Religare Broking.

With just about a week left for the Union Budget, buying and selling on expectations may also keep markets volatile.

“All eyes would likely be on the quantum of fiscal deficit for FY23 and its implications on both debt and equity markets. We expect infrastructure push to remain the key macro theme of the FY23 Union Budget,” said Shibani Kurian, Head- Equity Research, Kotak Mahindra AMC.

“Some of the other areas of focus could be boosting rural incomes, employment and strengthening the health infrastructure.”

Selling by foreign investors has been a worrying concern, not just during the last week, they have been bearish for the last four months now. During January, they have withdrawn Rs 8,791 crore from equities so far, data available on NSDL shows.

“Five days of consecutive weak trends in the US has impacted market sentiments. This might have influenced FPIs decision to sell in India, which they consider over-valued. FPI investment behavior has become highly volatile and inconsistent,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“There are no expectations from the budget as far as foreign portfolio investment is concerned. But some announcements regarding the inclusion of India in the global bond index is expected”

Ruchit Jain, Lead Research,
5paisa.com said for the coming week, 17,500 will now be seen as the important support while a move above 17,700 could again lead to a buying interest amongst market participants and take the index towards 17,900-18,000.

“In our view, this week’s correction is just a short term corrective phase and our markets should now resume the uptrend to mark a pre-budget rally,” he added.