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Markets Next Week; After 6-Month Lows, Expect Further Downside


It was a terrible week for the Indian markets, with benchmark indices seeing heavy losses. The Sensex and the Nifty drifted lower, with the Sensex now likely to breach the 26,000 levels mark next week. The benchmark indices this week have hit a six-month low, on account of a number of reasons.


Markets Next Week; After 6-Month Lows, Expect Further Downside
The biggest of these is that bond yields in the US are spiking. The direct outcome of this is that it results in capital outflows and this puts pressure on emerging market stocks.

This is why we have seen huge selling pressure in stocks in the last few days. The other reason is that the Indian rupee has breached the 68 levels with some ease. In fact, the US dollar has hit a new 13 year high against a basket of currencies.

No doubt certain pockets have become cheap, but, midcap stocks are still nowhere near where they were in Feb 2016. Fundamentally speaking markets are not very attractive, as the trailing price to earnings ratio for the Sensex companies still remains at a huge 20 times. Why would you want to pay 20 times, when the long-term historic average has been 17 times?

We believe that the market down trend could continue for some more time. In fact, if there is another 1,000 points dip in the Sensex, the markets could once again become attractive all over again.

However, domestic financial institutions may continue to buy into the market, which should lend support to the Indian markets at least for the time being. While FPIs have been selling large quantities, domestic institutions have been buying. This may provide some respite to the Indian markets.

Read more about: sensex nifty
Story first published: Saturday, November 19, 2016, 8:36 [IST]
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