Dollar’s rise may further dent investor confidence next week

Indian equities have come under pressure for their rich valuations with five major foreign broking houses downgrading their outlook on the market in the past three weeks. In addition to that, the surge in the US dollar index this week on the back of piping hot US inflation data is seen as negative for emerging market equities like India.

Brokerage firms Credit Suisse and Morgan Stanley recently suggested that investors may move away from emerging market equities as concerns rise over the slowdown in China, the expectations of a rise in US dollar over the coming months and expensive valuations of some of the markets.

“We expect the long term fundamentals of the market to remain positive and hence advise investors to keep accumulating quality stocks on declines. In the near term, however, the market may remain under pressure until fresh positive triggers appear,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

This week, benchmark indices fell nearly 2 per cent on the back of selling pressure from both foreign and retail investors. The weak debut of Paytm, India’s largest-ever IPO, also dented the risk appetite of investors with many concerned that valuations may have run ahead of themselves.

Leading the losses this week were banking stocks as the Nifty Bank index declined 2 per cent largely due to selling pressure from foreign investors. The sector has borne the brunt of the selling this week amid concerns over credit growth impulse in the economy and the impact of possible policy normalization by the Reserve Bank of India.

Automobile stocks had a solid weak before they gave up most of the gains in today’s sell-off. Investors are warming up to the sector after Morgan Stanley, earlier this week, said that the semiconductor issue is likely in the rearview mirror for the industry. Analysts expect the sector to remain in favour of investors next week as well.

Paytm, which listed on stock exchanges today with losses of 27 per cent from issue price, is likely to decline further as retail investors may look to cut their losses after a weak debut for the stock. Concerns over the company’s business model as well as valuations were counted as reasons for investors to dump the stock.

On the technical front, the Nifty50’s fall below its 50-day moving average was a cause of concern for analysts. “We suggest traders maintain a mild bearish to neutral outlook to position their trades. A break below 17,700 may lead the benchmark to test 17,500 levels,” said Yesha Shah, head of research at Samco Securities.