Equity Benchmarks Poised For Muted Gains This Year; Volatility To Rise: Report

India's equity market will post only minimal gains for the rest of the year amid rising volatility, according to strategists polled by Reuters, who cautioned the risks to that lacklustre outlook were skewed to the downside.

The global stocks rout in the second quarter had hammered the benchmark BSE Sensex Index, and concerns over the Russia-Ukraine war, aggressive rate hikes by major central banks and growth worries were likely to remain for the rest of the year, dimming hopes for a sustained rally.

Despite an impressive rebound of 15 per cent from this year's low of 50,921.22 on June 17 and foreign portfolio investments turning net positive last month for the first time since October 2021, gains for the year were expected to be modest.

The median forecast of 30 equity strategists taken August 10-23 showed the Sensex gaining around 4.3 per cent from Monday's close of 58,773.87 to 61,280 by year-end. If realised, that 5.2 per cent yearly gain would be the smallest since 2016.

Over 60 per cent of analysts, 14 out of 22, who answered an additional question said the risks to that forecast were skewed to the downside, with the rest seeing the risks skewed to the upside.

"Though we are optimistic on capital markets in India, a Black Swan-like event may occur in the later part of this year. In that scenario, a crash in capital markets across the world...cannot be ruled out," said R.K. Gupta, managing director at Taurus Asset Management.

"Therefore, a very, very cautious approach is needed, and profit booking should be a regular phenomena," he added.

That view was widely shared by a majority of respondents, 19 of 28, who said volatility would rise over the next three months. The remaining nine said it would decline.

Still, the benchmark BSE index was expected to surge to reach record highs of 64,150 and 65,300 by mid-2023 and end-2023, respectively, a 9-11 per cent gain from current levels.

With the financial market pricing in the current global tightening cycle largely ending by mid-2023, a deep correction in stock markets seems unlikely.

A nearly two-thirds majority of analysts, 19 of 30, said the chances of another major sell-off over the coming three months were low. The rest said it was high.

"We have already seen a major correction this year, and we have priced in the known risks," said Neeraj Dewan, director at Quantum Securities.

"Though if there is an actual recession in the US, then we may have some correction in our markets."