With similar factors driving the market down, the triggers of the current market fall makes it feel like 2022 all over again, according to Vinod Karki, head of strategic research at ICICI Securities.
"This is a repeat of what we saw in 2022 when the US Bond yields saw lows. That was one of the major correction, the correction is driven by the same factors," the equity strategist said. "The US bond yields have risen 130 bps and a similar playbook was there in 2022 with jumbo rate hikes and global uncertainty."
Spikes, Speculations
This time around, Karki said the difference is that the rise in bond yields is due to new administration maybe, and is more speculative at this point in time. "They are confident that significant progress has been made on the inflationary front and they are headed for their 2% objective. The Trump effect is kind of igniting this expectation of sharp changes in inflation," he said.
There have been multitudes of movements that have been based on the policies and tariffs that the Trump administration could execute, according to Karki.
"Similar to this, in calendar year 2016 when Trump came to power, there was huge euphoria around tariff policies and things like that. Big spike in the dollar index and bond yields rose. In January, when the announcement of policies came, the market had already acted on the same," he said.
Most of the movement and reaction is like the classic buy on rumour, sell on news. One can never call out how exactly it's going to play out. "Now, we are at reasonable valuations," he said, as the market has already positioned itself for the worst outcome.
What's The Way Out?
Along the lines of advice that other market experts give, Karki also highlights the need for allocating towards safer bets. "We have been advocating that large caps offer more risk-reward. While there was euphoria in the broader markets, the large caps were much better off," he said.
The markets have had quite a run and significant outperformance. These might revert, and Karki expects this especially in the mid caps.
With more focus expected on development on the economy this year, cyclical sectors like industrials, large financial companies and commodities are set to do well, according to Karki, as these sectors are paired with good valuations as well.
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