The US Fed always sets the tone for interest rates globally. It also influences the stock market, again globally, to a great extent. However, the kind of influence the Fed started having on equity markets across the globe may be unparalleled. A 1,000-points relief or bear rally on investors interpreting Fed moves positively or negatively has become the norm lately. Today, the market fell by over 1,000 points in the morning on the ultra hawkish tone of the Fed. The S&P BSE Sensex was down 800 points in the mid morning.
The worst hit was the IT sector. Technology indices nose-dived 4% in the morning trade on Monday. This is seen as a direct impact of the fall in NASDAQ. The Indian Rupee also fell 26 paise to a low of 80.10 against the US dollar on Monday. Despite the depreciation in the Indian Rupee, IT sector giants are underperforming. Analysts believe that the expectations of a sharp recovery in tech stocks is unlikely in the near term. The IT sector funds have been bleeding in the last one year with -11.97% returns.
“Today, apart from FMCG space, we are witnessing negative moves in all other sectors out of which most weakness can be seen in IT, Bank, Metal, Media and Realty space,” said Chandan
Mutual fund managers believe that the global uncertainties driving the fall might last for a couple of months. “Fears of global recession are looming large on the global equity markets. However, India is better placed that way. If we see a correction, the market will bounce back. This is because the underlying data remains strong. So, I believe that any correction like today is a good buying opportunity as far as the Indian market is concerned. We expect a broad based rally in the market. Financials and consumer discretionary are segments where valuations are good,” says Nilesh Shetty, portfolio manager, Quantum Advisors.
Mutual fund advisors always ask investors not to react in a knee- jerk fashion to sharp falls or gains in the equity market. These sharp falls should be seen as a part of the market volatility. Mutual fund investors should focus on their long-term financial goals and keep investing in a staggered manner to create wealth and take advantage of the near-term volatility, they say.
However, this doesn’t mean that one has to throw caution to the winds. Investors should remember that the global economy is facing an unparalleled crisis. If the steeper rate hikes fuel a painful recession, markets may be under severe pressure. If doomsday preachers are true, a prolonged recession can’t be ruled out at this juncture. The Indian stock market may take a hit if the bleak scenario unfolds across the globe. Faced with an unprecedented multi-decade high inflation, the global economies are struggling to rein in prices. At the moment, it seems, investors are more concerned about inflation and interest rates. Indian mutual fund investors should closely watch the Fed for clues.