Experts believe that both domestic and international events are to be blamed for the current volatility being witnessed in the markets. Talking to NDTV, most said that while sluggish international markets had made investors wary, the PNB fraud had further roiled the markets.
"At first the massive fall of 10 per cent in the US market triggered the cascading fall in Indian markets and then PNB fraud made matters?? Worse?. High valuation was also one of the reasons for such a fall in equities. Expectations of a rise in interest rates both domestically and internationally are sending shivers to the equity bulls," said Jimeet Modi, CEO, Samco Securities.
Dinesh Rohira, Founder & CEO, 5nance.com seconded Mr Jimeet Modi.
"The global equity market turned sluggish in recent times on anticipation of the US Fed rate hike and among other developed economies. It was further aided by rising inflation data across the advance economies. The volatility was also partly driven by a major fraud taking place in the banking space which shook the confidence of investors and its rollover across different connected sectors," he said.
However, domestic investors may yet come to the rescue of the market. "A boarder support can still come from domestic investors, which will gradually improve the sentiment of equity market," added Mr Rohira.
Because of the PNB-Nirav Modi fraud, public sector banks (PSBs) are likely to remain under pressure. "Some of them (PSBs) may however become attractive at lower price points, once the uncertainties of NPA (non-performing assets) recognition and the effects of bankruptcy resolution get acknowledged," said Dheeraj Singh - Head of Investments & Fund Manager - Fixed Income, Taurus Mutual Fund.
Bad loans had surged to a record high of nearly $149 billion last year. Chandan Taparia, Derivatives & Technical Analyst, Motilal Oswal, felt that if the Nifty continues to trade below the psychologically significant 10,500 level, the negativity could further persist. "If Nifty index holds below 10,500 zone, then weakness could extend towards the recent low of 10,276 and then towards the 10,000 zones, while on the upside hurdles are seen near to 10,650 zone," he said.
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However, some experts felt that the current volatility has to be seen in context of the huge rally that the markets witnessed in 2017. "The notable characteristic of that rally was that the maximum correction that Nifty witnessed was less than 5 per cent... Thus, the 7-8 per cent correction in Nifty and much more in the broader market has come as a reality check for investors and traders alike," said Jayant Manglik, President, Religare Broking Ltd.
Most analysts were, however, bullish on private banks and FMCG stocks.
Mr Modi's top bets were FMCG, consumer durables and private sector banks for a long-term horizon exceeding three years; Mr Rohira was positive on FMCG and infrastructure stocks; Mr Taparia maintained a positive outlook on private banks and select metal stocks; and Mr Manglik was bullish on auto and auto-ancillary, private banks and consumption-related stocks like housing, consumer finance companies, FMCG, consumer durables etc.
Mr Modi felt that public sector banks may bounce back once the NPA uncertainties get settled. "The PSU banks' mess has reached at its pinnacle - how quickly they will be resolved is the key factor domestic market is eagerly watching," he said.
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Mr Singh also felt that the outcome of the insolvency resolution processes of PSBs, along with growth and interest rates will guide the market sentiment.State assembly elections in 2018 will also be crucial for the equity markets, said Mr Rohira.
