The global markets have faced a major sell off in the last few days which can be attributed to a mix of factors including the ongoing geopolitical tensions and Japan raising the interest rates ending the zero rate regime. Also, job data from the US triggered recession fears.
Markets worldwide faced the heat including India’s Sensex and Nifty. On Tuesdy, Sensex tanked 1300 points from intra-day high while Nifty gave up 24000 mark taking cues from the global markets. The sell off was evident among all major verticals including financials.
Logically, a question arises in the minds of investors at this point. Should one exit the markets at this point?
The current market volatility is unlikely to affect Indian markets for long for a few factors:
One, India fundamentally remains a strong economy and the rally seen in the stock markets in recent months is largely backed by strong earnings. Indian markets are nowhere near a bubble zone. “Equities are down across markets and India has not been spared. This has nothing to do with fundamentals but only sentiment,” said Madan Sabnavis, chief economist at Bank of Baroda.
Second, Japanese Yen was considered a safe currency and investors used it for a carry trade (buying ,cheaper yen and converting to dollar) for years. But, this has changed after the BoJ raised interest rates and investors worldwide began unwinding their Yen holdings.
However, the Japanese central bank has clarified that it will not hike rates in a hurry. The Bank of Japan’s influential deputy governor said on Wednesday the central bank won’t hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs.
The remarks by Shinichi Uchida, which contrasted with Governor Kazuo Ueda’s hawkish comments made last week when the BOJ raised interest rates, boosted Japan’s Nikkei average and sent the yen sharply lower.
The statement should calm global markets at least for now.
Third, The US Fed may be soon nearing a rate cut as the FOMC meeting has indicated in the last round. If that happens, central bank across the world may follow cues and it should be positive news for global stock markets.
Hence, investors should hold on to their monthly SIPs and investments in stocks at this juncture. Correction in markerts are normal in every cycle.