With sentiments becoming weak in the domestic market it's always best to depend on fundamentals. And today, fundamentally, the Indian market in terms of valuation looks overstretched; adding to the woes, the corporate performance of India Inc isn't supporting valuations. Corporate performance continues to remain weak. Though D-street was expecting December 2014 quarter results to be India Inc's worst, expectations are that the March 2015 quarter will also remain weak and subdued.
In such a scenario it may not be the right time to be greedy but to remain cautious. Second, it would be advisable to stay cautious following the weakness in rupee. The weakness is because of strengthening of dollar on the hopes that US Federal Reserve will hike rates earlier than expected. This has already seen the Indian equity market slipping 3 per cent last week and investors are staying away from the market on concerns that US hiking rates will see an outflow of money to US.
On Tuesday, March 17 and Wednesday, March 18, 2015, the Fed meets to review US monetary policy. Though no one in the market expects any rate changes this time, investors will closely be watching Fed chief Janet Yellen's announcement on interest rates.
The weakness in the market is because participants were expecting US to hike interest rates in the second half of 2015 and today they feel the US may hike rates before second half of 2015. On the other hand some experts, including investment guru Marc Faber, don't expect US to hike rates in 2015 due to the weakness still surrounding the global economy and weak economic indicator in the US.
The week will also see Bank of Japan having its monetary policy review on Tuesday and Wednesday, March 17 and 18, 2015.
The low depth of Indian market has time and again been a curse of the Indian market. Foreign institutional investors are the life of Indian market and when they are selling or not investing, Indian market goes into a tail spin and remains subdued. All the immediate triggers for the Indian market seem to be over. On Monday, Indian market will be judged on its corporate performance. Advance tax number for the March 2015 will be in focus.
Compared to its peers the domestic market may look good but a correction will be healthy for it. Though the Reserve Bank of India (RBI) has surprised with a small rate cut, its impact will only be seen in the next 4-6 months.
Low oil price is positive for India and its economy. But corporate performance remains a concern. The other concerns surrounding India are the untimely rains in parts of India, including Punjab, Maharashtra and Gujarat, which will spell bad news for crops.
Though it may be pre-mature to make any judgement on the overall food scenario, increased food inflation is likely. Eyes will also have to be kept on the Indian rupee. The recent weakness in the rupee shows Indian currency is still vulnerable to global events and a weak rupee is bad news for FIIs. One of the reasons FIIs have invested in India was due to the stable currency and any weakness will see investors staying away from the Indian market.
Meanwhile, investors should be careful while investing in the shaky market. However, long-term investors with a time horizon of three years can use any fall as a good time to pick blue-chip counters to build a strong portfolio.