Indian market wiped out Rs 18 lakh cr in just six trading sessions as investors grew more cautious over the possibility of a quicker rate hike from the US Federal Reserve.

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The 2-day FOMC meet will begin from January 25 and the impact from the outcome of the US Federal Reserve meeting will be felt on Thursday for Indian markets.

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Experts advise investors to cut down on leverage and avoid any aggressive positions. Fundamentally, the Indian story remain intact, and dips can be used to buy growth stocks.

“Indian equities corrected massively, possibly reacting to US equities trending lower and rise in crude oil prices. In my view, there were no positive triggers to take the market upwards in the near term,” Amar Ambani, Senior President & Head – Institutional Equities, YES SECURITIES, said.

“While a further 500 points downside cannot be ruled out in the Nifty, on the brighter side, the stock market is much lighter and healthier, heading into the Union Budget, after the high in mid-October 2021,” he said.

Ambani further added that the structural story remains intact and he was confident that Nifty will achieve a higher high in 2022, than what was seen in 2021.

What is causing the panic?

Persistent selling by foreign investors has dampened the sentiment. But, the selling is largely across emerging markets. Also, weakness in global markets was also on the prospect of a Russian attack on Ukraine.

Any uncertainty usually weighs on equity markets and selloff was broad based. Considering the fact that we are trading near support levels, a quick technical bounce back could be on the cards.

Foreign investors are net sellers so far this month, having offloaded shares worth a net $1.18 billion, said a Reuters report.

Experts highlight reversal of this margin financing-based speculation as well as reversal of leverage bets which could be leading to steep correction in equity markets.

“As we can assess, the genesis of this correction is in the excessive speculation in crypto currencies. The value of all crypto currencies put together is down more than USD 1 trillion since November. This sharp correction is exacerbated by the crazy levels of leverage that was made available to speculators for cheap,” Abhay Agarwal, smallcase manager & Founder & MD, Piper Serica, said.

“The total margin financing book doubled to more than USD 1 trillion within a couple of years. This speculative behaviour was not limited to individual investors, and we are now seeing signs of reversal of this margin financing-based speculation,” he said.

Agarwal expects that leveraged positions will continue to be unwound, sharply and forcefully in some cases, leading to further sharp corrections.

What Should investors buy?

The Nift50 is down nearly 8 per cent from the recent record high of 18,604 recorded in October last year, and many stocks in large as well as mid and smallcap space are down in double digits from their respective highs.

Since much of the fall is due to external factors, experts advise investors to invest in growth companies which might now be available at a cheaper valuation.

“Our sincere advice to investors is to invest only in companies that have a profitable business model and are leaders of their high growth industries. If you can get these companies at a cheaper valuation through this sharp correction, it is even better,” says Agarwal of Piper Serica.

The big event after the US Fed outcome is the Union Budget. Considering the fact that we are trading light ahead of the main event – a bounceback could be on the cards. Hence, investors can look at stocks & sectors that are likely to benefit the most from Budget, suggest experts.

“A lot will depend on Fed policy outcome, a fast rate hike trend is mostly factored in the market, so a near-term bounce cannot be ignored, depending of final outcome,” Vinod Nair, Head of Research at Geojit Financial Services, said.

“Stocks related to capital goods, green energy, manufacturing in India, staples, FMCG and Hospitality will be in focus. This is in anticipation of the government's focus areas in the future by increasing capital expenditure, manufacturing hub, infrastructure, agriculture, and rise in income below the social pyramid,” he said.

Technical Outlook:

The Nifty50 recovered marginally towards the close of the trade on Monday but still formed a big bearish candle on the daily charts. India VIX, a gauge of market's expectation of volatility over the near term, rose 20 per cent which signals volatility in short term.

The index breached its supports one after another and even tested the 17000 mark. It recovered marginally from the lows towards the end but still ended around 17150 with a loss of 2.66 percent.

The Nifty50 closed below crucial short-term moving averages of 20,50 and 100-DMA, but it is trading above the 200-DMA placed at 16,603. Crucial support for the index is placed at 17000 while resistance is placed at 17300-17500.

“The index breached Friday’s low and the selling intensified which created nervousness amongst market participants. The index went on to even test the 17000 mark which was last seen during the end of December,” Ruchit Jain, Lead Research, 5paisa.com, said.

“FII’s were seen selling in the cash segment as well as in the index futures segment which has resulted in a sell-off in our indices. Rise in India VIX signals higher short term volatility ahead of the global and domestic events,” he said.

Traders should avoid aggressive positions and look for cues from the global markets and options positioning for the coming monthly expiry, advise Jain.

He further added that the immediate support for Nifty is placed around 17000 as the put option of this strike has highest open interest build up, while 17320 and 17500 will be seen as immediate resistances.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)