The Indian market is in a volatile phase for the past two weeks. In the last seven sessions, market indices Sensex and Nifty have registered a decline in six of them. Overall, both the major indices are down over 6% in the last seven sessions.
Equity fund managers believe that volatility in the market is a result of several factors with US Fed's signal that it will raise rates from March being the biggest trigger. The other major reasons are high valuations and rising oil prices.
"The current market slide is due to two macro factors. One is valuation concern (which has been present for some time now but the markets were not reacting earlier). The other reason is change in interest rate expectations due to what US Fed has said," said Sachin Relekar, Senior Fund Manager, IDFC MF.
"There are several reasons that have come together. One, the Fed has indicated that liquidity will be sucked out. Secondly, oil prices are on a boil. As a result, companies are facing cost pressure, leading to erosion of margins," said Sonam H Udasi, Senior Fund Manager, Tata MF.
In its latest policy update on Wednesday, the US Federal Reserve indicated it is likely to raise US interest rates in March, as has been widely expected and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.
Will the markets fall further?
Fund managers say a lot will depend on movement in oil prices, Budget announcements, inflation, change in interest rates among other factors.
"Our assessment says volatility will continue till we have clarity on both the fronts — downside to weakness in economy and the speed with which the Fed will withdraw liquidity," said Neelotpal Sahai, Head of Equities, HSBC AMC.
However, all fund managers are positive on India's medium-term outlook.
"Based on our analysis of capex intentions of corporate sector, combined with decade-low interest rates, we believe, India could witness a strong capex cycle over next 2-3 years, something that we haven’t seen since demonetisation times," said Trideep Bhattacharya, CIO-Equities, Edelweiss MF.
"In the next two-three year time frame, I am positive. Indian economy is already doing better and if the oil prices will start going down then India will have the best of both worlds. And this is likely to happen in the next 2-3 years as oil is facing pressure from electric vehicles," Sonam H Udasi said, adding that all sectors are now looking healthy, whether its consumer, cement, commodity, metals or banking.
What should equity fund investors do?
Bhattacharya feels that investors can leverage the volatility by using the 'buy on dips' strategy with a 2-3 year investment perspective.
Sahai recommends a staggered investment approach. "Given, the expected volatility in the near term, it may be better to stagger one’s equity investments to take advantage of the expected volatility in the near term (through SIP or otherwise)," he said.
Relekar and Udasi say that the correction is not big enough to warrant a change in investment strategy and that investors should continue with their existing investment plan.
