WHAT FACTORS ARE CONTRIBUTING TO

THE MARKET FALL

&
WHAT SHOULD AN INVESTOR DO?
Indian markets have been experiencing volatility since the last few days and
some segments are currently trading a 10% discount to the all-time
high. These are some of the most pressing factors contributing to the fall

1. Weak Global Cues – US markets are facing a severe downturn with Nasdaq
down around 20% and the S&P 500 down 10% from lifetime highs. Several factors
are causing this fall -
(a) Fed signalling hikes - The Federal Reserve on Wednesday, indicated
it could soon raise interest rates in March for the first time in over three
years to tighten the easy monetary policy and control the multi-decade high
inflation rate.
(b) Tech sell-off - The sell-off in tech stocks has been brutal last week.
With interest rates hike expected, investors are exiting overvalued sectors
and non-profitable segments. An important feature of the tech sell-off is
that bulk of the selling is happening in non-profitable tech stocks.
(c) FIIs sell-off - Foreign Institutional Investors (FIIs) have been pulling
out money from the Indian markets since October 2020, creating a selling
pressure and driving the market down.
(d) Crude oil prices - A rise or fall in crude oil price affects the prices of
various commodities. Crude oil prices have been shooting up for the past
few months causating a negative effect on the financial markets and
boosting inflation.
(e) Border tension - The heightened tensions in the Russia-Ukraine
border is also a major geopolitical concern, adding to worries.

2. F&O Contracts Expiry – Last Thursday of every month is usually considered

as the standard expiry date for the Futures & Options Market in India. Since the
expiry date marks the closure of the F&O contracts which causes volatility as
traders roll over positions in F&O segments.
3. Budget around the corner - If we look at the last three years' market
trend during the Budget, we see a pre-budget sell-off, then we see a post-budget
rally. Moreover, the anticipation of the Union Budget 2022 is causing a lot of
short-term speculative bets around the probable announcements that are going
to affect the various sectors of our economy.
MARKET MOVING FACTORS

Despite the volatility experienced in the short-term, markets can bounce back
to normal in the medium run, if the global cues and budget announcements
are favourable to the investors' sentiments. Earnings growth of major Indian
companies will also dictate market movement. RBI’s response to global interest
rate hikes will also be an important factor to look out for.

SOME POSITIVE CUES

While FIIs have been pulling out from most emerging markets, the rate of
sell-off in Indian markets is considerably lower.
Despite US inflation being extremely high, Indian inflation numbers are
still in control.
GDP forecast and earnings growth for the Indian markets are looking
favourable currently.

WHAT SHOULD INVESTORS DO?

Long-term investors who missed the bull run of the last 1.5 years are
presented with a great opportunity to enter markets in a gradual way.
Existing investors holding debt reserves can switch to equity funds during
days when markets are dipping or add small lump sums to existing
positions to take benefit of cost averaging.
Investors who have also been looking to add sectoral or global exposure can
slowly start adding an allocation to the Indian tech sector and
global funds preferably by way of SIPs.
Interest rate hikes would be staggered through the year which would present
opportunities to buy through the next few months. Investors can also
look to step up their SIP a bit for this year, in order to catch the volatility.
Investors with short term goals approaching can consider reducing equity
exposure in their portfolio and moving to safer havens
Not all stocks survive the volatility. While the entire market ran up
during the rally, only quality stocks survive during market
downturns. We have shortlisted only research-backed, high-quality
mutual funds that can handle volatility effectively and pick winning
stocks.