More pain in store for markets, say experts amid fear of further lockdowns

Market analysts are expecting choppy sessions for the Indian markets in the coming days. Analysts said that fears of further lockdowns and other restrictions have brought back fears of global economic recovery getting affected. And risky assets have come under pressure.

The benchmark indices fell for the last three sessions as rising Covid cases brought fresh worries about disruption in economic activities. Many Asian countries had imposed restrictions in some form to contain the Delta variant of Covid-19. The slow rollout of vaccination in India has compounded fears.

“Markets are getting affected because of the  Delta variant overseas. We are not sure whether India would see a delta variant rise. And whether we could see the third wave,” said Ambareesh Baliga, independent markets analyst.

Analysts said that continued restrictions could lead to downward revisions to the gross domestic product (GDP) growth.

The worries of inflation are also keeping the markets jittery. Inflation concerns have raised questions about whether central banks would be forced to roll back monetary easing sooner than expected.

The fact that Covid concerns have resurfaced when stocks are trading at elevated valuations are worrying. And domestic cues in India have not been very encouraging till now. The subdued monsoons and corporate results for the first quarter of FY22 have raised fresh concerns about Indian equities.

“This time, the earnings are also not supportive. After a stupendous earnings season in the last three quarters, every analyst had increased their expectations. But not many had reduced their expectations post the second wave. The earnings which we see now is due to the effect of the second wave. Generally, what we see is better results coming out at the beginning of the season. The second half wills see more of misses,” said Baliga.

Analysts advised investors exercise caution, especially in the small and mid-cap space, as these stocks are more susceptible to a steep fall. Moreover, analysts said any slight trigger could trigger profit booking when valuations are high.

“The markets could fall under its weight. What’s happened now is that in the last month, investors who made 20-30 per cent returns per month do not see that kind of return. There will be some tiredness from now on. People are so used to making money, and that fatigue could lead to some sell-off, and then we will have a cascading effect. We also have FPIs booking profits. Domestic funds are buying but for how long,” said Baliga.

FPIs have this month sold equities worth Rs 7,217 crore, according to data provided by NSDL. On Tuesday, the FPIs sold Rs 2,834 crore, according to provisional data from exchanges.

“FPIs are selling heavily. At best, markets would consolidate. Though global cues are positive, FPI selling will scare investors. In the short term, sessions could be choppy. Oil prices falling is the only positive in the last one week. If COVID cases keep rising, then it could pose a problem,” said G.Chokkalingam, Founder, Equinomics Research and Advisory.

The US bond yields on Wednesday closed at 1.24 per cent. Though it has risen from Monday’s 1.18 per cent, it is still hovering around lows seen in weeks.  Low bond yields are a sign that investors are taking money out of equities and sentiments turning cautious.

Some Asian markets on Wednesday recovered amidst a rebound in Wall Street and a surge in Japanese exports. Wednesday was a market holiday in India.