Markets have been on a downward spiral since August 2 when the Nifty50 hit a high of 10,137 levels in intra-day deals. Since then, the index has tanked nearly 4%, or around 400 points to 9,737 levels in intra-day deals on Friday.
The recent fall has been triggered by rising geopolitical tension across the globe – one, between India and China on the Doklam standoff, and two the developments with North Korea and the United States. That apart, Sebi’s order to ban trade in 331 suspectedshell companies also dented sentiment, as did sub-par second quarter results of select companies.
Given the developments, analysts say there could be more pain in store for the markets that have recently taken cognizance of the developing geopolitical situation. Though they do not wish to predict how deep and long this correction could last, experts do caution that the fall is beyond anyone’s control as it is driven by geopolitical reasons.
“Global events that are beyond market control have triggered the recently fall. If there is more action over the weekend, the markets will continue to fall in the coming week as well. A lot depends on the geopolitical front and to that extent predicting the road ahead for specific index levels is risky,” says Jayant Manglik, president retail distribution at Religare Securities.
Since its recent high on August 2,investor wealth as measured by market-capitalisation (market-cap) of the Nifty 50 companies till August 10 has dipped by over Rs 1,47,600 crore, ACE Equity data show.
Though the rupee saw its sharpest fall in a day since July 3 of 24 paise to hit 64.08 against the US dollar(USD) on Thursday, the Indian unit is in no hurry to breach 60 levels in the near term, suggests the latest report by Tanvee Gupta Jain, an economist with UBS.
Going ahead, Jain expects the rupee (USD/INR) to remain range-bound between 62-66 levels over the next few months and average 64.3 in FY18 and 65.4 in FY19. UBS had earlier estimated it to hover around 65.4 and 67.6 levels, respectively.
The USD/INR pair has been among the better-performing currencies in emerging markets, appreciating 5.9% thus far in calendar year 2017 (CY17). On Thursday, however, the Indian unit lost ground on reports of escalating India’s geopolitical tension with China amid developments relating to North Korea and the US.
“Rupee came under pressure against the US dollar and fell to the lowest level in a week after geopolitical tensions weighed on domestic as well as global equities. Asian currencies also weakened against the US dollar on weak global sentiment,” says Gaurang Somaiya, research analyst (currency) at Motilal Oswal.
“Weakness in domestic equities could continue in Friday’s session and that could further weigh on the rupee. On the domestic front, market participants will be keeping an eye on industrial production (IIP) data and slower-than-expected growth could keep the rupee under pressure.the USD/INR pair is expected to quote in the range of 64.00 and 64.45,” Somaiya adds.
China Market valuations have risen considerably over the past few quarters both in the frontline indices like Sensex or Nifty and in the midcap smallcap indices. The current equity market valuations are factoring in a robust recovery in earnings growth. Retail investors are worried whether the valuations would sustain at current levels. This depends on how soon and robust the earnings recovery is and how sustainable it will be.
While optically,the markets may seem to be expensive going by historical standards, bulls say that price-to-earnings (P/E) multiples are inversely correlated with the cost of capital.
Further, markets typically top out at times the economy is overheated and there is a general euphoria in the markets.
Index composition/changes and index earnings composition are other parameters to check whether the markets are really overvalued or not.The truth lies somewhere in between. If the economy is close to a bottom and corporate earnings are slated to recover soon, then the P/E ratios will look reasonable going forward.
However, in the case of earnings recovery being delayed, the markets may be expensive and may remain sideways for an extended Read More
Shares of Wipro, country’s third largest software services firm, hit a 52-week high of Rs 291 on Friday, up over 8% after the IT major announced a share buyback of Rs 11,000 crore entailing 34.3 crore equity shares at Rs 320 apiece.
buyback price is 24% higher than the average price of the stock for the past six months, which analysts believe is attractive and investors can consider tendering their shares. “The proposed buyback has been done at an attractive price. It will see the stock rally in the immediate term. I think investors can tender their shares,” said Sarabjit Kour Nangra, VP Research- IT at Angel Broking.
Brokerage HDFC Securities also suggests investors tender their shares. Going ahead, the brokerage feels organic growth for the company will remain a challenge and investors will be better off utilising the current opportunity to exit the stock .
“Organic growth engine for Wipro remains a challenge. Some pockets have shown improvement in the last couple of quarters. Digital revenue is growing strongly, but these are not enough to backfill the loss from legacy. We currently have a neutral rating on the stock, and we recommend shareholders to tender shares,” point out Amit Chandra and Apurva Prasad of HDFC Securities in a result analysis Read More