The equity markets have seen sharp cuts in the last few sessions. The benchmark indices have fallen near seven per cent since mid-January, with foreign institutional investors continuing to sell stocks amid rising tensions between Ukraine and Russia, the crude oil touching $90 a barrel and the Federal Reserve signalling interest rate rise as early as March.
Prakarsh Gagdani, CEO of broking firm 5paisa Capital says the volatility may continue till the middle of March. While this may not be a start of a bear market, with the upcoming budget and then the credit policy, he feels traders and small investors would be better off waiting on the sidelines till more clarity emerges.
We have seen a sharp correction in the stock market in recent weeks. How do you see things panning out?
Over the last two years, there has been a one-side rally; Nifty 50 from almost 8,000 has gone to around 18,000 level. So, there is some correction, which was expected. The current meltdown is largely due to global reasons. Crude oil has gone up to around $90 a barrel, you have a geopolitical situation in Ukraine, [US] Federal Reserve talking of increasing rates… I think, it's ok to have a correction of 10-15 per cent from the top, because there has been a massive rally that has happened.
From a longer perspective, as of now, I don’t see a structural change in the system, which will lead to a bear market. So, I don’t see this as a start of a bear market. As of now, I feel it’s more of a correction. We are not even down 10 per cent from the top.
Prakarsh Gagdani, CEO, 5paisa Capital
Do you expect more correction ahead?
I don’t see (the Nifty 50 falling) more than 16,400-16,500 level. Because, if you see corporate results, a lot of companies have announced their results, which seem to be good. Over a period of time, it's the performance of companies, which will actually drive the stock prices. If that is robust, you see domestic demand is good, most of the sectors are performing well. I think that will get factored in price in some time. So, once the dust settles, I am sure it is the earnings that will drive the markets and again we will see a rally.
Foreign institutional investors have pulled out from equity markets in January as well. With three to four interest rate hikes now being talked about by Federal Reserve, what kind of impact could it have on Indian markets?
The market going down is broadly due to the FII’s pulling out money, with less support from the domestic institutions. I think the domestic liquidity is still very good.
On the retail side, you are seeing a lot of money coming into the market. Even in mutual funds, monthly SIPs are at an all-time high. So, there is good money flowing into capital markets. So, from a liquidity standpoint, domestic factors are not that worrying.
So, corporate earnings are good, liquidity is there, retail participation is good. So, I don’t see that (fund outflows, aggressive Fed) as a big reason for worry. It may be a temporary blip, but I think that should be a good opportunity to invest in the market.
Will FII pull out continue, perhaps rise with interest rates going up in the US? That could have an impact on emerging markets, including India.
Looks like it will continue for a while…. That will have an impact on the Indian market. But, to what extent needs to be seen. If we are looking at a sell-off from the index level of 18,000 and it falls by 15-20 per cent, that’s a healthy correction. At some point, the domestic markets will look attractive to even foreign investors. So, you will see money coming in.
The market has already fallen quite a bit due to global factors. We have the budget coming in next week, and then there is the monetary policy. How is the market going to react?
I think the markets will be highly volatile. In which direction it will go is very difficult to say. One thing you can be sure is the coming week will see high activity and high volatility.
Most of the new investors who entered the markets in the last two years have only seen markets going up and up. So, how long is volatility going to continue?
Right now, there is uncertainty as to what extent the Fed is going to increase the interest rates. There is uncertainty in terms of the political situation in Ukraine. Uncertainty creates volatility and confusion. I think the next one to one-and-a-half months should be volatile, but then things would settle. The direction will become clear.
In such a situation, would you continue to invest in the markets?
If I am a trader or a very active investor, I will be standing on the sidelines for at least one or two weeks, waiting for the market to stabilise. If you are a small investor/trader, then you should be on the sidelines, because you don’t know how things are going to pan out in the next week. If I am a long-term investor, I will keep investing through SIPs, you can do SIPs in stocks too. If I know they are good stocks, I will continue to buy on dips.
Last two years, we have seen a huge amount of new retail investors coming into the market, opening Demat accounts. From the perspective of 5paisa, how was 2021, and on that kind of growth do you still feel this year will also be a very strong year for brokerages?
For us, 2021 was even better than 2020, for the industry as a whole. We opened almost a million accounts in the year. We doubled our client base in just that one year. I feel this will definitely continue. Unless we are in a very long bear phase, I think this is just a start.
You have only about 4-5 crore Demat accounts in the country. Now, investing in the stock market is not just for high net-worth individuals or for a select few in Mumbai, Gujarat or Delhi. Now, it's spread across the country.
Our population is growing, there are still lakhs of people who couldn’t benefit from the market. So, I think the growth in terms of new customers will continue this year as well.
As far as the returns from the markets go, it was a lottery for the last two years. I doubt that will continue. People have to be more cautious now, stock selection has to be proper. Last two years, anything and everything that you invested in gave you returns. That is not going to happen henceforth.
