Explained: After Friday crash, what’s in store for markets and what should you do?

🔴 Indian markets fell sharply on Friday due to several factors. How much did they fall, and why? Will the weakness continue? What should investors do?

The benchmark indices at BSE and NSE fell sharply by over 2 per cent on Friday as concerns mounted over the new Covid variant. There was anxiety around US central bank likely to wrap up its stimulus programme and raise interest rates earlier than expected in the wake of rise in inflation. These factors led to a sharp outflow of funds from Indian stock markets resulting in the decline in indices.

How much have they fallen?

While the Sensex fell over 1,100 points to trade at levels of 57,650, the broader Nifty lost nearly 350 points to trade at 17,190 on Friday. This was the second time this week that the premier indices have lost nearly two per cent. This week itself, Sensex has lost around 2,100 points or 3.5 per cent and since its highs on October 19, 2021 it is down around 4,700 points or 7.5 per cent.

Why is it falling?

The markets are currently weighed down by various factors. If rising Covid cases in Europe and other geographies and its impact on economic recovery is one factor, a fresh concern over new Covid variant strain in South Africa has raised fresh concerns in India and abroad and has unnerved the markets once again.

Besides, rising inflation in the US and expectations of US Federal Reserve going in for faster than expected tapering of its stimulus programme and earlier than expected hike in interest rates is another factors that is impact the markets in emerging economies.

If US increases the pace of wrapping its stimulus programme and starts increasing rates earlier than expected, it would lead to an outflow of funds from emerging economies including India which would impact the stock markets.

Over the last three trading sessions FPIs have pulled out a net of Rs 14,700 crore from Indian equities and thereby resulting in the sharp decline in indices.

Will the weakness continue?

While the broad domestic economic fundamentals remain intact and markets may rise in the medium to long term, they are expected to remain under pressure over the coming weeks on account of the factors mentioned above. If expensive valuations were a concern for domestic markets, fresh spike in Covid cases across Europe, a new Covid strain in South Africa and its possible impact on the pace of global economic recovery is weighing on the investor sentiment for now. Rising inflation across several economies around the world and impact of proposed tapering in the asset purchase by US Fed are other factors that are expected to keep the markets under pressure for now.

What should investors do?

Experts say that the current decline in markets driven by near term concerns is something that should not bother investors too much. Market participants say that as the domestic economic recovery remains on track and the pace of vaccinations in India is good, markets should hit fresh highs going forward. They say that these dips should be seen as investment entry points by investors who are underweight equities. It is also important to note that long term investors should not sell their holdings in panic but only do so if their investment targets have been met and they are in need of funds.

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