CNBCTV18.com tries to answer some of the questions investors are most concerned about.
Why did the market rebound today? Can this last?
It’s too early to tell if the rebound can last, given that there are short-term negative triggers.
Is the market close to bottoming out?
Again, hard to say. Sentiment has taken a hit over the past week, which could trigger further selling at the slightest sign of weakness in the market. A few months ago, it was a “buy on dip” market. Suddenly it has become a “sell up” market as investors try to get money off the table while they can.
Why are investors nervous?
The main cause for concern is that the US Fed is preparing to signal higher interest rates as it battles runaway inflation in the domestic economy.
Why is this important?
So investors are selling stocks and buying US bonds?
Not exactly. Several factors are at play here. When the US Fed raises its rates, the other central banks are also forced to raise their rates to maintain the attractiveness of their country’s debt.
More importantly, rising interest rates hurt short-term corporate margins and weakened consumer confidence, leading to lower spending.
Due to the almost unidirectional rally since March 2020, stock prices had become expensive. The recovery was first sparked by a sudden rush of money, then supported by rising profits as economic activity began to recover. But with earnings set to decline, investors are wondering if stocks should be so expensive.
What about Indian stocks?
Most foreign fund companies view Indian stocks as expensive compared to their Asian counterparts. This could limit inflows into India until foreign investors feel comfortable with valuations.
Does this mean the stock market is about to crash further?
How much have FIIs sold so far?
Just over Rs 11,000 crore so far in January alone and nearly Rs 9,000 crore in December.
But isn’t domestic liquidity strong enough to offset it?
What about leveraged positions in the market?
In the past, brokers funded their clients’ margin obligations and allowed them to overtrade. This is no longer the case. Retail clients can now only trade to the extent of the margin they are able to deposit with their brokers.
What about F&O market positions?
Retailers’ exposure to equity and index futures contracts has declined over the past two years due to SEBI’s decision to increase the minimum lot size. This has made futures trading expensive for retail investors.
What about IPOs?
Reasonably priced IPOs will find takers in any market. But the days when any random company could ask for obscene reviews and get them are over. Many companies will postpone their IPOs, hoping to get a better price later when the market stabilizes.
What should a retail investor do?
If you have mutual fund SIPs running, don’t interrupt them. If you are a direct equity investor, use each rally to sell stocks that were more seasonally flavored and not supported by fundamentals. When it comes to fundamentally sound stocks, wait a while before you start looking to add to existing positions.
(Edited by : Santosh Nair)
First post: STI