Global geopolitical tensions and negative domestic cues like disappointing corporate results are likely to keep the Indian market in a correction mode in the coming week.
The Nifty and Sensex, which have lost close to 3.5 per cent last week, could see further losses as the market momentum that took the frontline indices to record highs this month, seems to be broken.
Technical analysts are predicting that the NSE Nifty that has shed over 400 points from its peak of 10137 could test a low of 9600 levels.
According to analysts, Friday’s corrective move was no surprise as many were expecting this pessimism and the market could test lower levels.
The daily and weekly chart suggest that the much-awaited correction is in the early stages now and there is a good chance that the market would remain under pressure for the next few weeks.
“Stock investors are happy and also worried. Markets at high altitude will do better with consolidation than mad frenzy,” said Nirmal Jain chairman IIFL.
While the fundamentals of the Indian economy are continuously improving, giving greater confidence in the medium to long-term potential of Indian equities, short-term there are concerns over valuations and corporate earnings recovery.
Domestic sentiment was also adversely affected after the finance ministry said in its mid-year economic survey late last week that there are downside risks to the Indian government’s growth forecast of 6.75-7.5 per cent for the fiscal year to March 2018.
Lead indicators such as PMI manufacturing indicate that there has been a contraction in business sentiments in July, while GST-related slowdown will be short-lived and production should normalise over the next 2-3 months. More importantly, the progress in industrial sector is likely to be prolonged rather than a V-shaped recovery, experts said. The recent announcement by SEBI regarding the 331 stocks, which have shell companies have shaken the confidence of investors. “We reiterate investors to strictly invest only in companies with good corporate governance and strong balance sheets, says Sanjeev Zarbade, vice president, PCG Research, Kotak Securities. The biggest concern is the earnings growth. The results of frontline companies that came last week were not encouraging. And the market is closely monitoring the remaining corporate numbers. “The market could turn into consolidation as buoyed sentiment may reverse due to the fact that there is a lack of support from earnings growth,” said Vinod Nair, head of research, Geojit Financial Services. The market is also concerned over the slowdown in business growth that can lead to downgrade in earnings forecast for the next couple of quarters, he added. The next set of corporate results of prominent companies includes Coal India, Grasim Industries and Tata Power Company will be closely watched and any negative surprises will impact sentiments further, analysts said.