The Nifty 50 plunged to a fresh 18-month low in today's trading session as Indian benchmarks extended their selloff, but Manish Sonthalia, Director and Chief Investment Officer at Emkay Investment Managers, sees the market weakness as more of a valuation, flow and macro problem than an earnings growth problem.
The BSE Sensex fell as much as 1.69%, or 1,231.91 points, to an intraday low of 71,406.79, while the Nifty 50 declined 1.82%, or 413.05 points, to around 22,190. The pressure comes a day after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.5% and shifted its stance from 'neutral' to 'calibrated tightening'. Brent crude also surged above $104 a barrel amid continuing Middle East supply concerns.
Sonthalia, however, does not expect higher bond yields to derail India's earnings growth. In his view, the runway for corporate growth remains large, particularly as emerging businesses enter at relatively low bases and begin taking share from more mature businesses. One of the fundamental shifts that Sonthalia is watching is the movement of investors away from the tried-and-tested large cap companies to businesses with enough growth potential. He believes this could create a different leadership pattern once the current economic pressures start to ease.
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This is corroborated by the fund flows this year, with mid- and small-cap schemes attracting inflows, while large cap funds have seen substantial outflows. Sonthalia identifies intense FII selling and a change in the RBI's policy stance as important reasons for the current market weakness.
VandaInsights' Vandana Hari said crude supply fears have returned after a brief period of relief. Oil flows had seen a significant recovery, prompting crude prices to ease. But that improvement has reversed over the past 24-48 hours amid heightened Iranian attacks. For Brent crude, $110 a barrel is the level to watch, Hari said.
Capitalmind's Deepak Shenoy said global headwinds are intensifying the sell-off sentiment, but Indian macros remain robust despite the war crisis. He does not see inflation pressures as strong enough to significantly compress corporate margins. Shenoy also expects companies to deliver a meaningful positive change in topline growth, making order books and growth more important parameters for investors at this stage.
He warned that stocks experiencing sharper declines tend to have lower liquidity, which can amplify market moves. For investors, he said the current market momentum calls for patience and a rethink of existing strategies.
Markets are also dealing with higher global bond yields. The US 10-year Treasury yield is around 5.3%, while Brent has moved above $100, creating a difficult backdrop for emerging-market equities.
This also comes a day after the markets closed deep in the red, with Nifty settling 0.76% lower and Sensex ending 429 points down on Wednesday. The fresh weakness comes on the cusp of India's corporate earnings season, with Tata Consultancy Services (TCS) to be the first major listed company to declare its second-quarter results today.
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