market outlook: Equity investors should brace for more pain: D-Street veterans

Mumbai: Indian stock market saw an erosion of Rs 11 lakh crore of investor wealth over six sessions with benchmark equity indices tumbling to mid-July levels, and it looks like the bears are not done as yet. Analysts believe there is more pain in the offing, and investors should not expect any respite just as yet.

The global markets are facing the heat amid renewed concerns about further delay in economic recovery, as the world continues to grapple with the relentlessly spreading Covid-19 pandemic. The resurgence in new infections in Europe has led to concerns over the probability of fresh lockdowns in certain geographies.

Stock market investors lost Rs 3.91 lakh crore in Thursday’s rout as the marketcap of BSE-listed firms slid to Rs 148.79 lakh crore, and Sensex shed more than 1,000 points to close at 36,554, while Nifty dropped 326 points to close at 10,806.

“Globally risks are now playing out with the rally in the US dollar indicating risk averseness and many investors eventually realising that,” said Sandip Sabharwal, owner of, adding that there could be a W-shaped recovery in the market rather than a V-shape one.

Sabharwal also said the US investors are also now playing out the risk of the presidential election and the impact of that on the equity markets potentially.

Foreign institutional investors (FIIs) have sold Rs 8,410.7 crore of Indian shares so far this week, and they may pull out more money in the days to come.

“Markets were ignoring much of those risks earlier when there was a frenzied upside on and I think now those risks are playing out. So my guess is, we could see some bounce back from the current levels because markets got beaten down around 800-900 points in a short period of time but then we should see lower levels over the next two weeks before the market settles down,” Sabharwal said in an interaction with ET Now.

Technically, too, all indicators hinted that we may see more red on the screens over the next few days, than green.

According to Nagaraj Shetti, technical research analyst, HDFC Securities, the short-term trend of Nifty has turned down sharply and there is a possibility of more weakness in the short run.

“Any minor upside bounce attempt up to 10,900-10,950 could be a sell on rise opportunity in the near term. Our next downside target to be watched is around 10,200, which could be achieved in the next couple of weeks. Immediate support is placed around 10,560,” he said.

Benchmark Sensex had jumped 54 per cent from its March lows to its recent peak of 39,4671.31 seen on August 28. Such robust gains have been backed by easy global liquidity, even as the coronavirus pandemic continued to tighten its grip, and hurt businesses across the spectrum.

“Our market had risen substantially from the March lows, and some correction was imminent. I would view this as a healthy correction, which was bound to come in sooner or later,” said Vaibhav Sanghavi, Co-Chief Executive Officer, Avendus Capital.

The Dollar Index, which tracks the greenback against a basket of six other currencies, has rallied from recent lows, and is considered a direct variable of flows into emerging markets. When the dollar appreciates, there are outflows from riskier assets such as emerging markets equities.

Sanghavi said, at this point, there are some amount of redemptions happening in the EM basket at large. There could be more downside in the days to come, but the possibility of a big correction is unlikely.

“While it is difficult to pin a number on how low can the markets go, I do not think we are in for a steep correction,” he said.

A few were a bit optimistic though.

“I believe 10,800 could be a decent support, and maybe we can see some recovery. Even if it falls further, I doubt we can fall below 10,500. It will more likely be a halt, rather than a pause,” said Abhimanyu Sofat, head of research at IIFL Securities.

Sofat believes the rebound will be led by the defensive pack — pharma and the IT sector.