Crude oil price crossing $74 per barrel for the first time in six months and volatility ahead of election results next month is likely to weigh on the Indian equity markets. The recent rally was driven by strong inflows from global exchange traded funds (ETFs), which are now likely to book profits on their India investment to avoid impact from surprises in election results, say experts. As a result, both Sensex and Nifty may see downward correction in the next one month.
"Already, the combined market capitalisation of all BSE-listed companies is down from peak of Rs 159.5 lakh crore in August 2018 to Rs 152 lakh crore now," says G Chokkalingam, founder and MD, Equinomics Research and Advisory.
The rally, however, is narrow with a handful of large-cap stocks contributing most to the rally in benchmark indices in last two-three months.
"A lot of ETF funds, which were driving the market in the first quarter of this calendar year, are taking out money. Therefore, benchmark indices are now showing weakness. Just before May 23, on the day of election results, there could be a major fall as foreign investors may take out their investment," says another analyst.
"Going forward, we expect the Nifty index to prolong consolidation in the range of 11,850-11,550 amid stock-specific action ahead of derivative expiry of April series and amid ongoing Q4FY19 result season," ICICI Securities research analyst Dharmesh Shah said.
"The recent down move in Nifty Midcap carried all characteristics of a healthy corrective phase as the index saw a slower pace of decline and took 13 sessions to retrace 61.8 per cent of preceding up-move of five sessions. The shallow retracement along with elongated time consolidation signifies healthy consolidation," he added.
The volatility will persist until polling is completed. "Once exit poll numbers start coming in, the market may get some support upon clarity around the next government," Siddharth Sedani, Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers said.
Moreover, macroeconomic numbers are mixed in nature. "Inflation is the only positive factor," he says. But, other numbers like Index of Industrial Production and export numbers are not growing. Similarly, credit growth is going up while deposits are not growing.
"Markets will remain volatile for next few weeks," he added.