Nifty50 down by about 10% from highs! Time to buy the dip or wait before initiating fresh positions?

The Indian market has officially turned negative for the year 2022 largely weighed down by geopolitical tensions, rise in crude oil prices, heightened fears of an aggressive monetary tightening, and selling by foreign investors.

Analysts gave a thumbs up to Budget 2022 but rising geopolitical concerns brought bears back on D-Street after a strong rally seen in 2021.

The Nifty50 is down by 9.4 per cent from the recent high of 18604 recorded in October 2021 while the S&P BSE Sensex plunged nearly 6000 points from the high of 62,245 recorded in October 2021.

What led to the fall?

Indian market plunged by about 3 per cent on Monday weighed down by weak global cues. The S&P BSE Sensex dropped more than 1700 points while the Nifty50 closed below 17000 levels.

The manic Monday eroded more than Rs 8.5 lakh cr of investors’ wealth in a single trading session on the BSE, data showed.

Tracking losses in Asian and world markets bears remained in control of the Indian market amid warnings that Russia could invade Ukraine at any time.

Rise in geopolitical tensions drove oil prices to seven-year peaks and sent investors scuttling back to the safe-haven government bonds.

Also Read: US, Europe, Asian stocks skittled by Ukraine fears, oil scales 7-year peak
https://www.zeebiz.com/world/news-us-europe-asian-stocks-skittled-by-ukr...

Risk sentiment was further dampened ahead of the US Fed’s emergency meeting which heightened fears of aggressive monetary tightening, suggest experts.

“It is almost certain that the US-Fed will start raising rates as early as March, with up to 7 rate hikes in 2022. The US-Fed will also stop easing in March 2022, which implies that their balance sheet will start declining from April 2022,” Vineet Bagri, Managing Partner- TrustPlutus Wealth, said.

“This will cause a squeeze in liquidity conditions, in both supply and price. All this has made market participants wary, and they have started closing open positions and cutting leverage, which is causing a selloff in the markets,” he said.

What should investors do?

The fall in stock prices indeed makes Nifty50 and many stocks attractive at current levels, but experts advise investors to wait for clarity to emerge as markets are likely to remain volatile for some more time.

The Nifty50 is trading at a P/E ratio of 22.68x, and a Price-to-Book value of 4.38x. The P/E has fallen from the peak of 25x recorded in January 2022, data from Trendlyne showed.

“Amid rising global uncertainties and the current ongoing assembly polls, one should tread with caution. A short-term bearish bias should be maintained and the focus must be on preserving capital,” Yesha Shah, Head of Equity Research, Samco Securities, said.

“Investors having a long-term horizon should wait for markets to stabilize and initiate fresh investments only in companies having strong earnings visibility, good balance sheet strength and a reasonable valuation,” added Shah.

Geopolitical issues have added to global uncertainties arising from surge in inflationary pressures globally. Crude oil surged to over 7-year high level leading to hardening of bond yields in developed markets.

Given the situation, there is outflow of foreign investments from emerging markets in general and India in particular given the dependence on imports for energy, suggest experts.

Foreign investors (FIIs) have pulled out around Rs 10,000 from the cash segment of Indian markets so far in February, data showed.

“We believe that near-term challenges could continue to keep markets volatile. However, it appears to be an opportunity from investors' perspective keeping in mind the expectations of a multi-year upcycle in Indian economy over the next 3 to 5 years,” Gaurav Dua, Head Capital Market Strategy, Sharekhan by BNP Paribas, said.

“Quality matters in a corrective phase and investors do not need to get too worried about investing in good structural growth companies with a proven track record. On the other hand, the caution needs to be exercised in broader markets where the damage can be extensive for a prolonged period of time,” he said.

Technical Factors:

The Nifty50 failed to hold on to 17000 crucial supports on Monday. The index is now trading below crucial short-term moving averages such as 30,50-Days Moving Average, and the next big support is placed at 200-DMA placed at 16788.

“The Nifty index has been trading with the support of 200 DMA, which points out immediate support in the counter. At present, the Index has support at 16800/16650 levels while resistance comes at 17100 levels,” Sachin Gupta, AVP, Research at Choice Broking, said.

“On the other hand, Bank nifty has support at 36370 levels while resistance 37600 at levels,” added Gupta.

If the index breaches 200-DMA on the downside then a fall towards 16400 could be in the offing, suggest experts.

“Nifty did manage to close above its 200 DMA, but this will act as a crucial immediate support zone tomorrow. However, if that is breached, a retest of levels of 16,400 cannot be ruled out,” said Shah of Samco Securities.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)