Worst may not be over soon for equity investors; here's why

There is more pain left for equity investors on Dalal Street despite over Rs 23 lakh crore of wealth erosion since October 19 last year, the day when benchmark BSE Sensex scaled its all-time high of 62,245.43. Since then, the 30-share index has plunged nearly 14 per cent to 53749.26 on May 25 due to robust selling by foreign institutional investors, geopolitical tensions, worries over elevated inflation levels, and hopes of faster-than-expected rate hikes by central banks.

Overseas investors have sold shares worth over Rs 2 lakh crore since October 19, 2021. On the other hand, retail inflation surged to near an 8-year high of 7.79 per cent in April, breaching the upper limit of the Reserve Bank of India's (RBI's) target range for the fourth consecutive time, according to data released by the Ministry of Statistics and Program Implementation. The surge is largely driven by rising fuel and food prices.

Market watchers believe that the weakness in the equity market will persist going ahead. Market capitalisation of BSE-listed firms have already tanked to Rs 248.38 lakh crore on May 25 from Rs 271.42 lakh crore on October 19 last year.

Shrikant Chouhan, head of equity research (Retail), Kotak Securities said, “Inflation related to domestic food and global fuel prices will keep interest rates elevated and act as a headwind to market multiples.”

G Chokkalingam, Founder, Equinomics Research and Advisory said, “Weakness might continue for a maximum of another two months. Markets have already priced in to a large extent the impact of inflation and rate hikes. Soon the base effect also would help in moderating the inflation.”

On the other hand, AK Prabhakar, head of research, IDBI Capital Markets told Business Today last week that rising inflation globally will lead to a rise in interest rates and tightening of liquidity. “This can lead to 8-10 per cent correction going forward,” he said adding one can start to accumulate quality stocks slowly as markets will chart their course.

“Predicting bottoms is never a good idea and thus accumulating good stocks slowly will always be a better way to invest,” he added.

VK Vijayakumar, chief investment strategist, Geojit Financial Services added that inflation has emerged as a major worry for markets. Since inflation is likely to persist for some time, monetary policy, globally, will continue to be hawkish. “The Fed is committed to raise rates till inflation comes down. US dollar index has been appreciating steadily and bond yields are rising. FPIs are selling relentlessly. This is not a favourable backdrop for equities,” he added.

Mitul Shah, head of research, Reliance Securities said, "It is possible that there may be another rate hike in the coming months as the recent MPC minutes released earlier in the week pointed to a hawkish policy to curb inflation rates, thus weakness may continue in the near term."