For a long time and indifferent to the global movements, the Indian financial markets continued to perform exceedingly well. But, as the Dow Jones fell by more than 1,500 points within a day, it also resulted in a significant drop for the Indian exchanges. The Indian stock markets have been turbulent for more since the start of the year 2022 and experts suggest that the markets will continue to remain largely indecisive.
So, what should retail investors infer from this movement? Will global volatility continue to impact the Indian markets? How can retailers predict Indian market movements using global cues?
Here are answers to all these questions and what investors can expect from the Indian markets.
What do Indian markets look like currently?
Whenever a market sees a bull rally phase coming to an end, there is a phase of correction that is followed by a sharp recovery. Market experts call this a ‘relief rally’. This phase makes market participants believe that the correction phase is at an end. However, it leads to a steeper fall or correction.
Many investors who mistake this phase for recovery get trapped in a continuation of correction as the indices plunge further. In the present scenario, the worst phase of the Indian markets does seem to be over.
So, what is causing the Indian markets to be choppy? While there is no global war likely in the near future, what has impacted the global markets is an adjustment to rate hikes expected to be announced by the US Fed. The impact of the repeating Covid outbreak in China is also ruled out. The interest rate hike and the recent news of another hike expected to be announced by RBI are also some of the reasons why Indian markets are not stable at the moment.
4 reasons for market volatility in India
The Indian markets had been performing exceedingly well for a long time, and now, as the Dow Jones plunged followed by a drop in London’s FTSE 100 and Japan’s Nikkei, the Indian markets reacted with multiple downfalls.
Here are some of the top reasons why the Indian stock market is going through major volatility, including the impact of global volatility:
- The US ripple effect:
The US, being the biggest economy in the world, immediately impacts other global markets through any big market movements. This ripple effect is seen all over the world. As soon as Dow Jones falls, the Indian market too sees a drop in varying degrees.
- Rising crude oil prices:
Crude oil prices have risen across the globe since the start of the Russian-Ukraine war. The price rise has caused a major sell-off across equity markets. The Sensex and Nifty too reacted with a fall as a result of this impact since India relies on oil imports for the majority of its energy needs. As oil prices rise, markets are impacted negatively.
- Market correction:
Since the Indian markets had been performing exceedingly well for some time, both the major indices breaking new records, experts believe that they are now undergoing an imminent correction. In simple terms, most shares were being overvalued until now and prices were seen to be coming back to the right levels.
- Other global factors:
The recent Covid resurgence in China, war developments, global unemployment rate, etc. are also seen to be influencing various global markets, including India. The Indian markets are expected to remain range-bound due to the lack of any positive news coming in. This has led to investors continuing their investment in pockets to ensure a margin of safety.
The global and Indian markets are expected to continue being volatile this year and to remain in the range-bound consolidation phase in the short term. Experts believe that larger global movements like the economic impact of the Russia-Ukraine war will be clearly seen only in the long run. The US economy is also expected to undergo a recession phase. There can also be the spread of a new Covid-19 variant that may lead to economic disruption and impact on the markets. Therefore, investors are better off if they move with caution and invest in the markets from a long-term perspective and in phases.
For retail investors, the current stock market condition may seem risky, however, it is also a good time to start investing in phases. Since the market is in the accumulation/consolidation phase, there is a lot of price correction happening, which can allow investors to enter at good price levels for maximum long-term gains.
Retail investors must tread with caution while investing in foreign stocks during the current market downfall. This is because there is a lot of uncertainty regarding the market direction in the near future.
Many investors use debt instruments, gold investments, real estate, etc. to hedge against losses from stock market investments. Expert investors also make use of futures and options for hedging.
Investors can expect fundamentally sound and large-cap companies to sail through the current market conditions in the long run.
Most retail investors, especially those who are new to the market, are stuck in the current market condition as they are unable to get out of the market due to losses. This is mainly due to the ongoing consolidation/accumulation phase of the market.