Indian equity markets have got the trigger, which they were looking for, to start an intermediate downtrend in the garb of 'Surgical strikes' by our armed forces in 'POK'. As pointed out earlier, our markets had moved far ahead of fundamentals, and a meaningful correction was long overdue. The correction is now underway and we may witness the markets sliding gradually to reasonable levels during the course of next 2 months or so. But at the same time it would be prudent to be flush with cash, as there would be opportunities galore for picking up blue chips at 'bargain prices'. As the festival season unfolds in India, companies would be launching mega sale of their products, similarly this year stock markets would also be offering bargain sale of blue chip shares of companies for the long term investors.
Those of you who have booked profits in shares, as advised in these columns earlier, can enjoy the festivities with purchase of your favourite products or take a dream holiday to your favourite destination. But do keep some profits aside to be re-invested in equity markets as they correct reasonably to give a better risk-reward ratio to long term investors.
Let us analyse the factors that are responsible for the on-going correction in equity markets. Let us first analyse the 'Geopolitical risks' prevalent in the world at this juncture:
Those of you who have booked profits in shares, as advised in these columns earlier, can enjoy the festivities with purchase of your favourite products or take a dream holiday to your favourite destination. But do keep some profits aside to be re-invested in equity markets as they correct reasonably to give a better risk-reward ratio to long term investors.
Let us analyse the factors that are responsible for the on-going correction in equity markets. Let us first analyse the 'Geopolitical risks' prevalent in the world at this juncture:
- The diminishing role of US in the world affairs, will lead to escalating conflict in the middle-east, with Russia playing the role of a spoiler.
- Post 'Brexit' a closed Euro zone will face an enormous challenge grappling with the twin problems of economic stability and refugee influx due to terrorism.
- The economic instability in China looms large as it grapples with the 'Debt bubble' which could have far reaching consequences for the global economy.
- The 'Oil shocker' could escalate the war for supremacy in the middle-east, especially after lifting of sanctions against Iran, and its competitive stance against Saudi Arabia.
- The US presidential elections would keep the world on its tenterhooks till November, as it unfolds into a swinging battle between Hillary Clinton & Donald Trump.
India specific issues:
- Most positive news has already been factored in: A near normal monsoon & the effect of the 7th Pay commission arrears on consumption and inflation. The markets may get a temporary bump up if RBI announces a surprise rate cut in its October 4 policy, but it would be short lived
- Tensions across the border would give the markets enough jitters, leading to an increase in volatility.
- The 3rd quarter results may again prove to be a dampener, as most companies continue to be weighed by excessive debt, with no signs of demand pick up except in a handful of sectors.
The above factors indicate that the markets may have entered into a short-term corrective phase which may last for about 2 months, and the price correction has the potential to lead to a substantial correction in the indices: I would be comfortable with a Nifty level of around 8000 to commit fresh funds for long term. This would be the level around which I would advise investors to seek 'bargain hunting' in accumulating blue chips for the next bull run on Indian bourses.
