Indian Stock Market May See 10-15% Correction, Says Renaissances' Pankaj Murarka
"I still think probably this is a storm, and we need to lie low and let it pass," he said.
The Indian stock market is mostly likely to see a 10-15% correction with the Nifty falling to 22,500, according to Renaissance Investment Manager's founder, Pankaj Murarka.
This view gained prominence after the Indian equity benchmarks nosedived on Monday, tracking a sell-off in global equities following the unwinding of carry trade in Japanese yen amid fears of a recession in the US.
The Nifty and Sensex fell as much as 3.3%. The Nifty hit its lowest since June 27, and the Sensex hit its lowest since June 26.
According to Murarka, a bull market correction can be very sharp and quick, with a potential fall of anywhere between 10% and 15%. Despite that, he said, "We still remain in the bull market."
"We've had a ferocious rally in Indian equities in the last 15 months, and everyone has been waiting for a correction for a long time, with people trying to time it with election results and budgets," he said. "We've finally got one, and the cause is global markets."
"Japan has finally moved, in one of the most extraordinary monetary policies, to raise rates to neutral. All of this has caused dislocation in currency markets and financial markets across the board, and in India, we have seen aftereffects," Murarka said.
"I still think probably this is a storm, and we need to lie low and let it pass," he said.
However, Murarka doesn't think anything has changed fundamentally. And that is a good thing, he said, as in the backdrop of global financial turbulence, India's macro-fundamentals are very stable, and the appreciation of the yen will not have any significant impact on the country's macro-fundamentals.
At the same time, he believes that some pockets of the market, especially in small and mid-caps and over-extended sectors like defence, can have a deeper cut.
Though he is bullish in the long term, he said that once the correction settles, the next leg of it is sectoral rotation, and there will be a change in leadership from the current industrial, capital goods, defense, and PSUs. "I think that rally is done," he said. "These stocks are already discounting 2-3 years of earnings forward."
He said that the IT sector, along with healthcare, has underperformed in recent months, but noted that rural distress in consumption has slowed and that a good monsoon will bring a revival in consumption.
He also expects the Indian monetary policy committee to cut rates in response to a US rate cut.
The CME Fed watch tool showed that the Fed fund futures traders are now pricing in a 97.5% chance of a 50 basis points rate cut in the US in the September meeting, as against an 88.2% chance of a 25 basis points rate cut earlier.
