How should investors deal with the current market scenario?

How should investors deal with the current market scenario?

Currently in India, a wave of pessimism is prevailing both in equity markets and the economy thanks to a series of negative sentiments and poor macroeconomics all over the globe. The benchmark index Nifty has declined by around 10% in the current calendar year 2022 followed by the mid-cap and small-cap indexes which declined by 12-25% resulting in the big erosion of investors’ wealth due to poor investment sentiments.

In the last couple of months, financial markets all over the globe are revolving around the central bank’s commentary on a continuous basis. The recent rate hikes by the Federal Reserve have also fueled the other global bankers along with RBI to take a fresh call on their domestic interest rates. Indian Markets have witnessed a roller coaster ride in the last few trading weeks and have undergone many hiccups from Federal Reserve commentary, RBI Monetary Policy, Global Economic Data, and Inflation figures. The benchmark Index has been consolidating in a broad range coupled with volatile movements.

If we talk about the overall investment scenario, the index has been in the range but the real pain has been seen in the individual stocks. The continuous selling of the frontline stocks by FIIs and the global meltdown has made retail investors a little worried about the future of their portfolios. During the corona period, the index tested 7500 levels in the early 2020s and thereafter witnessed a ferocious rally toward 18600 levels.  During this period, many new retail investors joined the equity markets and got fascinated with investing as well as trading.  These new participants have not witnessed a correction in the markets in the last couple of years till the end of the calendar year 2022.

But, in the last couple of quarters, the markets witnessed good time-wise correction, especially in the broader markets which made these market participants sit on the sidelines. As per the historical trends, every correction in the markets is usually utilized as a buying opportunity by the market participants, and in the long term equity markets outperformed the other asset classes.

.How will markets pan out?

In the short-term perspective, we expect markets to react to news flows from the global markets, Federal Reserve interest rate decisions, movement of crude oil, and other essential commodities in the international markets.  FII selling is the major concern for the markets in the near term while weakness in the Rupee will keep the indices in check. We recommend short-term traders keep a close check on their position sizing and risk-taking capacity before investing in any stocks.

On the other hand, Indian markets are positioned very well positioned to digest any major hit from uncertain events from the global peers. India has emerged as the best investment destination for global players amid strong economic conditions in comparison with the other emerging economies followed by investor-friendly policies from the central government. We expect the foreign money to again flow into the Indian equities in the later period as and when the global economic scenario improves. Long-term investors should keep their cash ready for investing in equity markets on any corrections and build a strong portfolio.

Opportunities in the current market Scenario:

Now the question comes of when and where to invest in such a volatile market scenario. We believe that while the near-term horizon may be bleak; the future for long-term investment remains good. Stock markets reward the patience of investors. As Warren Buffett says, “One should be fearful when others are greedy and greedy when others are fearful.” Nobody can catch the bottom or the top of any market; it is the discipline that will create wealth. I believe markets are likely to come out of the current rough phase and expect pro-growth measures from the government.

With a pickup in the economy, cyclical sectors like Autos, Cement, and Consumption should benefit if the economic activities revive in the second half of the year while IT and banking stocks may be accumulated in a staggered manner. We expect markets to stabilize in the second half of the current calendar year and may again start the bullish momentum towards higher levels. Long-term investors should start accumulating good quality stocks on any correction in the markets and may also opt for SIPs in various funds from the current juncture. On the other hand, short-term traders should always quantify their risk-taking capacity before taking any positions in stocks or indices. We also advise derivative traders to hedge their heavy positions for any unexpected event to avoid heavy capital erosion.