Fasten seat belts it’s gonna be a bumpy ride

Global markets livened up as Fed sent a dovish hint. But this could well be a knee-jerk reaction with fund managers expecting the worse. The writing on the wall is: the interest rate cycle has changed and rates will not soften unless consumer sentiment nosedives. For investors in emerging markets like India, this means learning to live with volatility.

The way forward could be going long, may be longer than usual, with an implicit faith in fundamentals and the India story. Else, time and trade the market at your peril.

The truth is that going ahead, inflation worries would make emerging markets like India volatile. “Inflation will affect margins to an extent, but much can be said only after the Q1 results. So long as the economy is growing at such high rates, the market will not entirely lose its charm. Generally, the market tries to exhaust itself after a bull run...it will take some time for it to revive,” says Ramesh Damani, member, BSE.

As interest rates go up, there will be some pressure on companies. When the Fed hikes rates, other central banks are bound to raise interest rates, as the US economy often serves as an anchor. But growth numbers emanating from the US are robust, and a higher rate is only too obvious. In India, inflation is at the top of RBI’s mind. “Rising interest rates are short-term negative, but long-term positive. And once market players establish faith in the system, markets will move up,” feels Nilesh Shah, CIO, Pru ICICI Mutual Fund.

However, a stunning bull market is clearly not expected this year. “We are witnessing a very strong technical rally, but the high for the year is made,” admits Mr Damani. Liquidity will impact the markets in the short-term, making markets volatile. “The markets will now be volatile as cross-current flows among players looking at short-term valuations and long-term fundamentals will be seen,” says Mr Shah.

Make no mistake. The market today has become a gambling den, and volatility is part of the game. Says Parag Parikh, chairman, Parag Parikh Financial Services, “A good investor is definitely not bothered about volatility. But today, the market has a lot of punters masquerading as investors. This group often finds itself at the wrong end of a volatile market. Investors invest once in six months.”