Bearish mood still hangs over India's equity markets; here's why

It’s not even been two months since the Indian equity benchmark indices—the BSE Sensex and the Nifty 50—touched record highs. But if you tell someone that the indices were at record levels around mid-September, they will scoff at you.

They have their reasons. On October 31, the BSE Sensex closed at 63,874.93, more than 4,000 points, or nearly 6 per cent lower than its record high of 67,927.23, touched on September 15. In fact, October proved to be the worst month so far for the 30-share index in the current calendar year, with a fall of nearly 3 per cent, or 1,953 points. Further, the advance-decline ratio, an indicator of market confidence, declined to 1.02 in October, which is the lowest since March (0.90).

More importantly, headwinds that are dragging down the markets and inciting investor pessimism are still at play and not showing any signs of abatement. Key factors impacting the Indian markets include geopolitical developments—like the Israel-Hamas war and the conflict between Russia and Ukraine—that could cause oil prices to spike in the near future. On top of that is the increased volatility being witnessed due to a rise in US bond yields, which is making foreign investors press the sell button in India. Foreign portfolio investors have sold shares worth over $4.7 billion in the past two months.

The majority of analysts anticipate higher volatility in the Indian markets over the next several months, with a clear downward tilt. However, they also note that the long-term growth story remains intact, which makes the occasional corrections attractive buying opportunities for investors. None other than investment guru Mark Mobius has said that the Indian benchmark Sensex could go up to 100,000 in the next five years, though there will be corrections en route, which can be used to buy quality stocks at relatively cheaper valuations.

@ashishrukhaiyar