Understanding why markets have become nervous

It has been a comfortable ride in the markets for investors and traders till the start of the current calendar year 2023. The indices were stable, with the sentiments on the street being upbeat on expectations of a good Union Budget and a halt of Federal Reserve rate hike in the first quarter of the calendar year. The markets have been under wait-and-watch for the last few months, while the current year is expected to be good from the market perspective.

Global and domestic markets have also already factored the halt in March by Federal Reserve till the start of February. Still, the recent data in the US show a different picture. On the other hand, the recent fluctuations in commodity prices and the rise in the US dollar index have weakened the Indian Rupee.

Indian Markets have again become nervous from the last couple of weeks when the Sensex is now down more than 2000 points in the past seven days sweeping more than 9 lakh crore worth of value after a few factors have triggered volatility in the equity and the currency markets. The prices of the index and the stocks have been rattled in the last few days thanks to the fear and volatility which has conquered the street under its grip. Below are some of the factors which are responsible for the recent carnage on Dalal Street and the currency markets:

1. Fears of further rate hikes from the Federal Reserve
2. Rise in Inflation due to international factors
3. Recession Risks on the global front
4. Rise in Interest rates in India from RBI
5. Impact on the growth numbers on emerging markets
6. FIIs selling intensified after the Fed’s hawkish statement
7. Adani Issue and the Selling in Banking stocks
8. Debt-related issues of corporates catching the eyes of market participants
9. Election results due of North Eastern States
10. EL Nino Talks in the coming season
11. Nervousness in the global central banks
12. Technical Weakness on Charts is the last factor.

Apart from the above factors, the markets have become more vulnerable to global and domestic factors and are showing big reactions even on the smaller news flows. Along with the negativities, markets are also focussing on a few positives, which may support the indices in any declines. Below are some factors among them:

1. Capex from the government
2. Positives from the economic indicators
3. Pre-Election rallies
4. Sentiment improvement from the global front.
5. Global Market rally resumption in the latter half of the year.

From an investment perspective, sectors like banking, Infrastructure, cement and consumption will do well in the pre-election period. The central government will focus on increasing capex and expanding consumption and disposable income. Overall, we expect the market to continue the ongoing sideways to the bearish trend in the short-term period. At the same time, any steep corrections will be an excellent opportunity to accumulate good-quality stocks.

Let us keep the dark side of the world aside and start fresh with new ways of investing. In the current world situation where everything seems negative, we must step ahead and find the best way to invest in securing our prospects and growth.

Short-term traders should hedge their trading positions, while on the flip side, investors should start accumulating quality stocks from current levels after the recent correction. While if further edits come, it will be an excellent opportunity to add more to the portfolio.