Markets Next Week: More Downside Risks Exist

The coronavirus is spreading fast and is creating havoc to businesses across the globe. If it persists over the next few weeks, some companies maybe out of business for sure. The entire business environment at the moment looks exceedingly bleak. In such a state, it is very difficult to believe that the stock markets would fire.

The downside risks to the markets are far higher, than any meaningful upside.
Immense Volatility

Investors have never seen such kind of volatility ever. On Friday, the Nifty fell 10 per cent and was frozen at the circuit filter limit and than jumped again by 5 per cent. 15 per cent movement in a single day and that too on the indices is unprecedented.

This is likely to stay, unless, economic activity is back to normal. Investors have to brace themselves for another week of volatility or its best to stay on the sidelines at this stage. You maybe tempted to look at good quality stocks available at cheap prices, but, one is not sure, if they would get it even cheaper.

FPI selling worrisome

Foreign Portfolio Investors have resorted to heavy selling in the cash markets, net selling to the tune of Rs 30,334 crores in the first thirteen days of March.

Until March 13, they net bought shares aggregating Rs 66,304 crores and sold shares aggregating Rs 96,639 crores, resulting in a net sale to the tune of Rs 30,334 crores.
In the month of February as well they had resorted to selling, though the intensity was much less. They net sold in the markets to the tune of Rs 12,684 crores only. They have already sold stocks worth Rs 43,000 crores from Feb 1 onwards, which to a large extent has been absorbed by domestic institutions.

Week ahead: brace for volatility

Investors are hoping that the central banks around the world would deliver big interest rate cuts in the coming days. While this may not kill the virus, at least it raises hopes that the central banks around the world are acting quickly.

Which direction the markets would go, depends on the news emanating about the coronavirus. More casualties and infections is bound to raise the alarm bells going forward. In short, investors should brace for volatility and just wait on the sidelines till the dust settles down.

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