Why Markets Can Meander Sideways For Now

It’s no surprise that stocks are moving sideways as markets brace for a few volatile months ahead. Buying is emerging at lower levels at every dip as investors continue to buy into the dips. However, the upside seems to be restricted for now as market men are sceptical that news flows could be negative in the coming weeks.

In the last seven months, stocks surged nearly 1800 points or 23 percent and so markets are rightly pausing for a breather. The S&P CNX Nifty has corrected 4.1 per cent from its peak of 8952.5 reached on September 8, 2016.

The sideways direction is expected to continue for some time now as foreign investors are pressing sales, while Indian domestic investors are buying at lower levels. This tug of war is about evenly balanced. Domestic investors poured Rs 1617.4 crore in the markets last week, as against an FII selling of Rs 2405.2 crore.

The positive factor for the markets going forward is that Indian investors are increasingly gaining confidence of entering at lower levels. Stocks of mid- and small-caps are holding steady even during volatile days. Mid- and small-cap stocks are exhibiting volatility but their recovery shows that investors are still gung-ho about the counters.

Domestically, India’s growth fortunes continue to remain mixed. On the one hand, the IIP numbers have slipped -0.7 in August 2016, while on the other, inflation continues to slide lower. CPI inflation fell to 4.31 percent, a one-year low. To further boost core growth, the Reserve Bank of India cut interest rates by further 25 basis points, but whether it will revive growth remains to be seen.

But coming to the results season, the earnings numbers so far are showing a healthy trend. The consumption story is going strong, and many companies are reporting a better topline and bottomline.

Stocks like Force Motors raced 11.6 percent last week due to a rollout of a superior growth strategy. Bharat Rasayan stock zoomed 11.2 per cent, while paper stocks have been in focus with Ballarpur Industries clocking returns of 8.1 per cent.

The consumption story is going strong selectively with Asian Paints hit a 52-week high last week. The revival of infrastructure spending is seeing its proxy, the cement sector clock decent gains. Deccan Cements, too, hit a new high.

A fall in interest rates in the domestic economy can spur local investors to further seek risk assets, and that is likely to be a big boost to the economy. In the coming months, there could be a switch from debt to equity as low yields in the debt market might prod investors to switch to equity assets.

However, for now the equity markets are at bracing for what could be a volatile two months. Globally, there have been bouts of worries given that the US presidential election date is drawing close. Besides, the US Fed is also slated to hike interest rates which could see a pullback of money of all sorts from the global markets.

In the coming days, keep an eye out to purchase the dives.