Domestic bourses fell sharply as profit booking across the counters dragged indices. The benchmark index BSE Sensex shed 1,170 points on Monday to close at two and a half month low level of 58,466. Global factors, says Binod Modi, head, strategy at Reliance Securities, like surge in the dollar index and a fresh rise in Covid-19 cases in various parts of European nations and resultant lockdowns imposed by Austria, weighed on sentiments. "Similarly, domestic factors like government scrapping farm bill and heavyweight RIL announcing re-evaluation of the deal with Aramco also weighed on investors’ sentiments," he adds. A huge fall in Paytm share prices post-listing have added to the negative sentiments.

All the key sectoral indices recorded a 1-5% fall with PSU Banking falling as low as 5% today followed by 3-3.5% correction in financial services and auto. Midcap and Small-cap stocks witnessed steeper correction today, while the volatility index surged over 19%. Notably, telecom stocks were in focus today after Bharti Airtel announced a tariff hike in prepaid plans today. Bharti Airtel, Asian Paints, Britannia and JSW Steel were among top Nifty gainers, while Bajaj Finance, Tata Motors, Bajaj Finserv and RIL were laggards.

Will the stock market fall further?

Technical analysts suggest volatile stock markets ahead. The market seems to have entered into a sharp downward correction. "The overall chart pattern as per smaller and larger time frame is weak and more weakness could be in store in the near term. Having declined sharply from the highs, the minor pullback rally from the lows can’t be ruled out in the short term, before showing another round of weakness in the market," says Nagaraj Shetti, technical research analyst, HDFC Securities. Further lower levels are to be watched at 17,000-16,800 in the next few weeks.

Markets have entered into a consolidation phase with the recent correction. Analysts suggest investors utilise the stock-specific volatility to form the equity portfolios. "The stretched valuation segments are witnessing profit booking and money is flowing into value segments where earnings have started to grow after several earnings of stagnation," says Amit Gupta, fund manager, PMS, ICICI Securities.

Modi of ICICI Securities believes that While higher government’s capex and revival in industrials’ capex should continue to aid economic recovery in the medium to long term, the liquidity-driven market may take a backseat in 2022 and investors must start focusing on the quality aspect of companies.

What should equity investors do?

Equity investors should look at allocating fresh capital in tranches, says Divam Sharma, Co-founder of Green Portfolio, SEBI registered Portfolio Management Services. There were many investors who were waiting for such an opportunity to do fresh buying.

FII inflows into equities in the current month to date have been robust. Developed markets like the U.S. are reflecting positivity post the recent falls. Huge allocations are being done in small-caps in the U.S. as sentiments for such small companies are seen improving and valuations look comfortable there. As per Divam Sharma, we see a similar kind of opportunity in India where the broader markets (small-caps and midcaps) are looking attractive after the recent fall of 10-30% in valuations. Commodities prices and crude cooling off will be a long-term positive for the Indian markets and the growth story of India is intact and we are in a long-term bull market, he adds.

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