Indian markets look tired after stupendous rally which took the indices to life time highs. Market breadth measured in terms of Advance-Decline ratio has turned unfavorable (in favor of Declines) over last two weeks and volatility seems to have come back to the market, which otherwise was running in one direction. Moreover, for the first time since long, broader markets have turned negative on month-on-month returns, with BSE Small-cap index at -3.37% and BSE Mid-cap at -2.89% (as on 29th May). Global cues too seem to have turned. With dollar index back to Nov’8th level (pre-US election) and US ten year yield drifting to six month low( to 2.25% level), there are signs of weakness in the tire-less rally we have seen in the US markets post the US election, famously dubbed as Trump Bump.
With earning season coming to an end and with the news flow on monsoon and GST discounted, we have much less to count on for new triggers. If at all, the news flow only can turn negative with the massive de-stocking expected across channels and across sectors during GST rollover. Given that set-up, markets could turn more volatile with possibility of deeper cuts, esp. in small and midcaps, if the global cues turn negative. On the other hand, if the global cues remain stable, markets could consolidate and spend more time in a range with intermittent weakness.
For value investors who have waited too long on the sidelines, the expected correction (in the best case) or consolidation (in the worst case) will present an entry opportunity soon. Given the increased momentum on domestic flows from the much talked about shift in house-hold savings from physical to financial assets, it may be unreasonable to expect a very sharp correction, though can’t be ruled out. More so, with ongoing surge in monthly SIP book (nearing 5000Cr) for the mutual fund industry. Given this, any cool-off or consolidation can be a good entry point for investors who have been sitting on fence for a while.