Markets to remain volatile the coming week

Indian equity markets kicked off the new fiscal with negative biasness. Benchmarks continued their downward journey for the seventh consecutive week as the sharp rise in the number of coronavirus cases, especially in the developed markets of US and Europe, has become one of the biggest threats to the worldwide economy and financial markets. Weak domestic auto sales numbers for March also added to the woes.

Despite market’s downward journey, India VIX cooled down to 55 levels, from its highs of 87. Even Brent crude recovered to $32/barrel after hitting 18 year low of $20/barrel, amidst hopes that Russia and Saudi Arabia will end a price war by slashing crude output.

For the week, Nifty50 and Sensex fell 6.7%/7.5% respectively to close at 8,084/27,591. Overall market breadth was negative with Nifty Midcap100/ Nifty Smallcap100 down 3.8%/2.3%. For the month of Mar’20, Nifty/ Sensex fell 23% each, recording biggest monthly fall since Oct’08. For FY20, Sensex/Nifty is down 24%/26%, recording biggest fall since FY09.

FIIs continued to be net sellers for the fifth week in a row, selling equities worth Rs 10,450 crores while DIIs were net buyers of Rs 6,900 crores. FIIs sold for the third consecutive month, selling equities worth Rs 65,800 crore in Mar’20. DIIs despite buying equities worth Rs 55,600 crore were unable to provide support to the markets.

With fresh cases of novel coronavirus mounting by the day, concerns over a looming economic recession are keeping investors jittery. Going forward, markets are likely to remain volatile. While equities have corrected significantly, we believe they are providing opportunity for the long term investors. While it is very difficult to predict the bottom, it always rewards investors in the long term who take benefit of such sharp falls. Thus we suggest investors to start accumulating gradually 5-10% of any fresh allocation towards equities.

(The writer is Senior Vice President, Head-Retail Research, Motilal Oswal Financial Services Limited)