Roller coaster ride continues in market; 2 key factors fanning extreme volatility on Dalal Street

The Indian market continues to experience a roller-coaster ride, exhibiting an extreme level of volatility. After falling by more than two and half per cent on Thursday, the market was up nearly by similar gains in Friday afternoon. In late afternoon trade, benchmark Nifty50 and the Sensex have risen by nearly 3% each. Bank, metal, realty and pharmaceutical stocks were leading the recovery on Friday as all sectoral indices comfortably sat in the green.  

As per the expert, with Nasdaq & S&P 500 correcting by 30% and 19% respectively as on Thursday, the extreme volatility was due to the fear that the US market might slip into recession in 2023. Besides, Foreign Institutional investors continue to exert pressure and spark volatility with relentless selling.  

"The excessive volatility in the market is broadly due to two reasons. One, the market has discounted severe monetary tightening by the Fed which is likely to take the Fed funds rate to around 3% in 2023. Two, the market has not fully discounted the probability of the US economy slipping into recession in 2023," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services on the current trends in the market.  

He was of the view that until there is clarity on the second issue, the 'risk-off, risk-on mode' in the market is likely to continue in the near-term. "It may take a few weeks for the markets to stabilize," the expert opined.  
 
It is important to appreciate the fact that the dominant feature of this market is bearish in the short-term, he underlined.  

Nasdaq is 30% down from the peak and S&P 500 is 19% down from the peak. These are reflections of weakness in the market, said Vijaykumar.

In India, FIIs are likely to continue selling since it is the only emerging market where they are sitting on good profits and the market provides the liquidity to sell, added Geojit Financial Services Chief Investment Strategist. 

Amid volatility, the FIIs sold to the tune of Rs 4,899.92 crore alone on Thursday and remained net sellers in May with Rs 42,836.96 crore till May 19, showed FIIs data with the exchanges.