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Business News/ Markets / Stock Markets/  Nifty 50 continues its wild swings; how should investors play this volatility?

Nifty 50 continues its wild swings; how should investors play this volatility?

The Nifty 50 witnessed significant fluctuations due to investors reacting to the 2024 Lok Sabha election trends. Experts foresee minimal impact on the macroeconomic landscape post-election, advising investors to focus on quality stocks and maintain a long-term perspective.

Indian stock market: After a nearly 6 per cent fall in the previous session, Nifty 50 jumped over 3 per cent on Wednesday, June 5, as hopes prevailed that the BJP-led NDA was ready to form a stable government.

Over the last three sessions, the Indian stock market benchmark, Nifty 50, has experienced significant fluctuations as investors engaged in hectic buying and panic selling in response to emerging trends about the outcome of the 2024 Lok Sabha election.

After a nearly 6 per cent fall in the previous session, Nifty 50 jumped over 3 per cent on Wednesday, June 5, as hopes prevailed that the BJP-led NDA was ready to form a stable government.

Also Read: Lok Sabha Election results 2024: What does lack of BJP majority mean for market, economy? Foreign brokerages weigh in

The wild swing in the market was mirrored by the volatility index, India VIX, which plunged 15 per cent on Monday, surged 28 per cent on Tuesday, and then fell 29 per cent on Wednesday.

While government policies can shape economic outlook and market dynamics for the long term, historical trends show election outcomes are short-term triggers for the market. Experts believe there may be some shift on the policy front after the new government is formed, but they do not see a material impact on India's macroeconomic landscape.

Also Read: A weaker mandate for NDA may trigger a shift in policies, but the macro backdrop may not change materially: Emkay Global

The outlook for the market

While no major impact on the macro parameters is expected, the market is expected to closely observe government policies and the Union Budget in the near term.

Rahul Singh, CIO - Equities at Tata Asset Management, believes the election result may lead to a more balanced market.

"Risk-reward in large caps and underperforming sectors like banking and consumer appears more favourable. On the other hand, there is likely to be greater scrutiny and valuation discipline in the performing sectors like capital goods, power, defence and manufacturing," said Singh.

"The macro parameters will likely remain largely stable and provide downside support to valuations. The key points to watch going forward would be the tilt of government policy and the Union Budget," Singh said.

Manish Chowdhury, the head of research at StoxBox, believes that after the election outcome, there may be no drastic changes in the economic policies of the BJP-led NDA government in the third term. However, some dash of populism cannot be ruled out.

Chowdhury underscored that historically, markets settle down in the short-to-medium term after an event risk and corporate earnings trajectory takes precedence. He does not foresee a major market drawdown in the near term and expects markets to await the Budget outcome in the first half of July for further direction.

"In our view, the structural theme and fundamental thesis of Indian equities remain intact, and any major dip should be utilised as a buying opportunity from a medium to long-term perspective," said Chowdhury.

Sarvjeet Singh Virk, the co-founder and MD of Shoonya by Finvasia, believes the Indian stock market may remain volatile in the short to medium term, with investors closely monitoring political developments and economic data releases.

Virk said volatility will likely decrease over the next few days, with market focus returning to macroeconomic factors, which remain strong.

"The outcome of the ongoing negotiations between political parties and the eventual formation of a government will play a crucial role in shaping the market's trajectory in the coming days. After the first full budget is presented, the focus will return to capex, manufacturing, rural, consumption, and credit lending. The rural and consumption theme is expected to pick up pace with the onset and progress of the monsoon, which is predicted to be above normal this year," said Virk.

What should investors do?

The market may continue testing investors' patience, but investors must continue buying quality stocks as the domestic market's medium—to long-term outlook remains solid.

"Investors must look to invest in quality sectors and stocks where earnings visibility is more certain. Strong earnings and an expected good monsoon will comfort the financial markets, but the days of paying any multiple for stocks are now gone. Interesting themes could be rural recovery based, manufacturing and consumer discretionary," said Siddharath Arora, the director and head of products and research at Equirus Wealth.

Also Read: Volatility could continue for another two weeks; Nifty may reach 23,500 by December end, says Trivesh D of Tradejini

The Indian market may remain volatile in the near term and see significant corrections that will remove the froth and bring the valuation to rational levels. Amid corrections,

"Indian equities are in the biggest bubble ever in the history of world equity markets. Indian equity market valuations are expensive for ordinary corporate earnings growth. We would recommend that investors should look for good quality Indian stocks which have a price-to-earnings ratio of less than 30 and only when the market is deeply oversold and that too for the short term to medium term only," said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.

Also Read: Avoid ‘narrative’ stocks, focus on fundamentals, says Kotak Institutional post Lok Sabha election results

Goel suggests investors should make some changes to their investment strategy and tweak their portfolios as Indian markets are extremely over-valued and do not represent a great buying opportunity.

"We advocate investors to remain cautious due to stretched valuations and hold off on making investments until there has been a sizable market correction. We are extremely bullish on 30-year Indian government bonds and see them as a great investment opportunity for the next two years. We have a long-term bullish outlook on gold but do not recommend buying it at current levels," said Goel.

Experts point out that it is essential to maintain a balanced perspective, while focusing on long-term strategies, while it is equally important to avoid panic selling and prioritise individual company analysis.

"Strong fundamentals and resilience against political changes are crucial to navigating market volatility. As new trends surface, thoroughly evaluating companies' growth prospects and valuations becomes critical. This outcome reminds investors to stay vigilant and make well-informed decisions," said Virk.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.

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