The downtrend in the Indian stock market, caused by factors such as steaming crude prices, high inflation and weak global cues, is not likely to rub off on its future prospects that continue to be robust in long-term, say experts.
The Bombay Stock Exchange index, Sensex, has dived 11% from the peak of 20,509.09 points in January this year and 13.86% from its all-time high of 21,206.77, scaled on January 10, 2008.
"The Indian stock market is neither expensive nor cheap. The structural story remains intact, it's only that the recent macro headwinds pose a challenge and hence the conviction have wanned for those who cannot look beyond a year or so," Ashika Stock Broking Research Head - Equities Paras Bothra said.
Echoing similar views, Abhinav Dwivedi, Founder and President of Progressive Financial Ventures said, "India commands a huge growth potential with solid company fundamentals and much improved infrastructure. Long term perspective is still bullish."
The bearish sentiment at the stock markets is accompanied by a steep decline in inflows from foreign institutional investors this year.
So far this year, FIIs have been net sellers as they have sold equities worth Rs 2,274.10 crore, while last year they had made record investments in the Indian capital market, as per data available on market regulator SEBI's website.
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In the year 2010, FIIs had purchased stocks and bonds worth around Rs 10 lakh crore, the highest for a year and nearly one-fifth of their overall investment so far.
But market observers believe that "It's [FII selling] not permanent. In a downtrend, offloading equities is normal."
"FII flows are likely to remain moderate to weak because of the natural tendencies of equity market as an asset class becoming unfavourable with high interest rate regime. Moreover, the recent political and corporate fiascoes has put the FII flows on tenterhooks," Bothra said.
Further, with higher interest rates and volatile commodity prices, Indian stock market would have a roller coaster ride ahead.
Corporates would feel the pinch of margin pressure and hence a slowdown in earning and lowering of earning estimates in coming quarters is not ruled out, they said.
Sector-wise, banking, capital goods, oil refineries, cement and infrastructure would be under pressure owing to inflationary pressure, higher interest rate regime and higher crude prices and under-recoveries.
Asked about where the market would be at the end of this year, Dwivedi felt it would be "at better than current levels."
Bothra said, "Sensex probably won't cross the all time high in present macro-economic situation and on the downside below 16,000 would be an excellent buying opportunity."