Global investors on a selling spree; here's what should be your strategy now

Indian bourses remained turbulent as India VIX surged over 11% on the back of rising Covid-19 cases, which may diminish swift economic recovery prospects. The choppiness in the markets indicates rising nervousness amongst investors and traders alike. While global markets such as the US observed profit booking on anticipation of increased corporate and capital gains taxes, India faced similar pressure on equities, as investors started looking towards safer havens to deploy their money.

With rising uncertainty, precious metals seem to be inching upward. Gold prices moved higher to drift near their eight-week highs as the dollar witnessed some weakness. But the rising scepticism led to an FPI outflow of around Rs 6,200 crore net in April itself, after over 6 months of robust buying.

The forward-looking equity markets have already factored in most predictable risks and the majority of stocks continue to trade at frothier valuations. Therefore, a correction irrespective of the reasons was bound to come and this time it can be attributed to the second wave. Currently, a number of industries are facing hurdles, for instance, automobiles and consumer durables are noticing demand erosion as shops and showrooms continue to remain closed, the aviation industry, which was on the cusp of a full recovery from the pandemic, is again observing twin pressures from the dwindling number of passengers as well as rising ATF prices.

The financial sector too can experience headwinds arising from a delay in timely interest payments if the economic condition deteriorates. During such uncertain times, it would be best to recollect what Jack Bogle stated: ‘The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.’ Hence, investors are suggested to stick to their equity allocation strategies in quality stocks instead of timing intermediate short term market entries and exits at bottoms and tops.

Event of the week

Life insurance industry in India recorded stunning growth in new business premiums in March and ended the financial year on a high note, against expectations of de-growth in FY21. Leading private insurers delivered a 56-120% APE growth along with stronger volumes owing to the low base from last year. Margin trends have also been robust for companies aided by a higher mix of protection and non-par savings products.

Investors can continue investing in quality players in the insurance space as they are in it for the long haul and the underpenetrated nature of the industry will only bolster the topline going forward.

Technical Outlook

Nifty50 index closed negative on the weekly chart and is now consolidating at a crucial support level. The index is trading outside its major rising channel, so bulls need to protect the current support as any break below the same can trigger a bearish sentiment throughout the market. Many major stocks are showing signs of trend continuation on the upside and Bank Nifty index is also forming a sort of minor bottom around its short-term averages on a weekly timeframe. However, on a cautious note, other leading global indices which were outperforming India are now showing signs of a pullback. We suggest traders maintain a mild bullish to sideways bias on the market and keep tight stop-loss just below the market support.

Expectations for the upcoming week

Over the coming week, investors across the globe would keep an eye on the outcome of the FOMC meeting for any change in interest rates and their future guidance on inflation. Any central rate change will have a ripple effect on other rates, including foreign exchange rates and bond prices which may have a sizeable influence across emerging markets. Concurrently, with the ramping up of vaccination drives it is expected that focus would shift back to growth, cyclical recovery and fundamentals. Next week being the monthly expiry, traders are advised to abstain from taking aggressive bets as there is a high probability of whipsaws due to the Q4 results. Nifty50 closed the week at 14341.35, down by 1.89%.

(The writer is Head of equity research at Samco Securities. Views expressed are personal)