When global stocks are in bear market, can Nifty be far behind?


Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said as globally markets are highly integrated, the largest market, US, sets the trend and others follow.


Amid fears that the Federal Reserve’s fight against inflation may lead the US economy into a recessionary trap, not just US stocks but even the MSCI ACWI Index, which contains stocks from both emerging and developed markets, officially slipped into bear territory this week. The S&P 500 is down more than 21 per cent from its record high and the tech-heavy Nasdaq has crashed 33 per cent from highs.

Back home, the headline index Nifty50 is down around 15 per cent from its all-time high of 18,604.45 touched on October 19. Are Indian stocks also going to follow the mother market US?

A fall of 20 per cent from the peak is treated as a bear zone. For Nifty, a dip below the threshold of 14,883 would mark that territory.

Dr VK Vijayakumar, Chief Investment Strategist at

, said as globally markets are highly integrated, the largest market, US, sets the trend and others follow.

“Markets have not yet discounted a full-blown US recession and its impact on corporate earnings. So, unless inflation shows signs of peaking and then declining, the bearish trends may persist,” he said.

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Another Dalal Street veteran Vikas Khemani, Founder, Carnelian Capital Advisors, said India is positioned very differently this time around as compared to the last Fed cycle.

“When the Fed started interest rates last time our current account deficit was 4 per cent of GDP and our domestic flows were not as strong as we have today. India’s structural growth story is the best in the world. I do not think there is any other market which offers this kind of growth story,” he said, adding that he sees no reason for the selloff to deepen in a major way.

Mahesh Nandurkar, MD & Head of Research, Jefferies India, said India has actually been relatively a big outperformer. “But I think the news flow and the markets are still going to be weak,” he said, adding that the Indian market will yield zero returns in the next 12 months.

Although domestic inflows have been strong, FPIs have already sold Indian equities worth Rs 1,91,000 crore so far this year.

Nandurkar, however, points out that foreign investors have sold only about 5 per cent of their holdings out of the total FII investment in India of more than $600 billion. “I would not be surprised if the FPI selling continues but there will be a worry if we see some signs of a slowdown in domestic flows,” he said.

Vijayakumar says FPIs are not selling in India because they are negative on India. “India is one of the few EM markets where they are sitting on good profits and valuations in India are even now much higher than that of EM peers.”

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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