Stock Market Volatility: How well India's market is placed to absorb current fluctuation? Experts decode

Volatility In Indian Stock Market: The rise in stocks in the last one month has been accompanied by an increase in volatility. Nifty50 closed above 18,000 on September 13, the first time after April 4. The index, however, erased gains in just 10 sessions to close at 17007 on September 27.

The rise in stocks in the last one month has been accompanied by an increase in volatility. Pic: Pixabay

Volatility In Indian Stock Market: Global markets are on edge as investors brace for a heightened risk of recession in the United States and Europe. The continuous uncertainty and fluctuation due to various factors have also affected the Indian stock market. The rise in stocks in the last one month has been accompanied by an increase in volatility. The uncertainty and inability to predict the market have left traders and investors in a state of bewilderment.

Although GDP indicators and growth numbers have been boisterous and experts are bullish on India's growth story, there have been debates about how well India's market is positioned in the prevailing global scenario to absorb this unsystematic volatility. At this point, the effect of macroeconomics on the overall economy, particularly the stock markets, is being keenly watched.

Sachin Gupta, CEO, Share India, said that the equity markets have been choppy with mixed sentiment over the inflationary pressures. He said that volatility due to global developments is something that the entire world is grappling with.

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"The post-Covid effect had not been neutralised when we all got drawn into the prolonged Russia-Ukraine conflict. This has led to uncertainty around energy, fuel, essential grains and host of other commodities which in turn has adversely affected short to medium term outlook,” he said.

Strong Fundamentals

Both Russia and Ukraine are significant cogs in the global supply chain wheel. Russia is the world’s largest wheat exporter and Ukraine is also a key importer of wheat and sunflower seed oil. Besides food items, the two countries also contribute to the global demand for coal and crude oil.

India's equity markets are not untouched by global developments. "But India is better placed than most global economies due to its strong fundamentals and dynamic governance. The RBI has been treading the fine line with great success," he said.

Retail Investors

FPIs and HNIs continue to be bullish on the equity outlook and retail investors are registering record numbers in terms of volumes and average ticket size through mutual funds as well as the direct equity route. There has been a trend that when markets take a deep dive, the retail investors emerge as buyers, thus converting the volatility into an opportunity. "All this augurs well for our markets,” Gupta added.

FPIs Record Investments In August

Going by the data, foreign Portfolio Investors (FPIs) made record investments of Rs 51,200 crore into the Indian equity market in August which is the highest inflow in the past 20 months. It translates into a 100% growth over July which shows investors' confidence.

Gupta predicted that with inflation cooling off, more and more investors will turn to buy and buck the selling trend that is being witnessed for the past few months. "However, the pace of inflow may not remain as robust due to other factors like rate revision by US Federal reserve,” he said.

Although FPIs made record investments in August, investors are concerned over persistent foreign fund outflows in the last few sessions. Deepak Jasani, head of retail research, HDFC Securities, said that the recent zig-zag moves in the market were quite tough to handle as FPIs are taking profits and this has led to Indian markets performing in line or a little worse than other markets over the last few days.

He said that this is not unusual as the "upside triggers are lacking for the global markets as a whole".

Market Volatility Explained: Domestic equities have corrected by more than 4 per cent over the last five sessions as global uncertainties dominate market sentiments. Barring two sessions (September 19, 20) in the last 7 sessions, FIIs were net sellers in the capital market, offloading shares worth Rs 13,795.53 crore (Rs 2,823.96 crore on September 27; Rs 5,101.30 crore on September 26; Rs 2,899.68 crore on September 23; Rs 2,509.55 crore on September 22 and Rs 461.04 crore on September 21), according to stock exchange data.

Nifty50 had closed above 18,000 on September 13, the first time after April 4. But the index erased gains in just 10 sessions to close at 17007 on September 27.

Low Crude Prices

Explaining the rationale, Amit Gupta, VP & Fund Manager - PMS, ICICI Securities, said that Indian markets remain relatively better due to lower inflation than peers and other major economies. Also, lower crude prices can safeguard against lower exports and depreciating currency.

"Rupee though depreciating but the pace of depreciation is low than others. India is still expected to be one of the fastest growing economies in the world. When others are fearing recession, we are growing in excess of 7%. India has positive real interest rates in comparison to more than 5% negative interest rates in US and Europe," he said.

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