Stock markets may well gain ground in recent trading opportunities, but market pundits aren’t ready to talk about any sort of turnaround just yet, as sentiment remains weak amid global and domestic concerns.

According to Sanjay Mookim, strategist and head of India research at JP Morgan, Indian markets could fall further with weaker global equities and it’s hard to say markets have bottomed out yet.

Excerpts:

BT: What is your Sensex or Nifty objective for the end of 2022?

SM: Our base case is that the Nifty will offer zero return from January to December 2022.

BT: Has there been a downward or upward revision to the Sensex/Nifty target since January of this year?

SM: We haven’t changed the objective since the first release in January. The market is currently on track for no returns so far

BT: India’s benchmarks are significantly down from their highs reached in October last year (they were down 18% until recently). Do you think Indian indices can enter a bear market with a drop of 20% or more?

SM: Sentiment around Indian equity markets has deteriorated significantly. The external environment is getting tougher with rising inflation and rising oil prices. It is entirely possible that the Indian market will fall further with weaker global equities.

BT: Has the Indian stock market bottomed out?

SM: No. It is difficult to say that the market has bottomed out.

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BT: If you had to identify 3 or 4 key market concerns, what would they be?

SM: Global growth deteriorates while inflation increases. Oil prices present a key macroeconomic risk for India, as it leads to a larger current account deficit and pressures on the currency. Domestic growth is also slowing even though valuations remain elevated. Tighter USD availability is also driving outflows from India. Indian equities will likely remain under pressure unless some of these external brakes begin to reverse.

BT: Are we still in a long-term bull market with ongoing declines only technical corrections?

SM: India’s structural growth drivers – urbanization, demographics and improved manufacturing – are intact. These will also help distinguish India from peer countries. This should make India an attractive market in the long term.

BT: REITs sold nearly $34 billion in nine months. Would REIT sales continue at the same pace or would you expect some sort of reversal or reduced pace of selling?

SM: It’s hard to see FPI flows reversing any time soon. The [US] Fed raises rates as Indian economy slows. Unless oil prices ease significantly, it will be difficult for flows to return.

BT: Domestic institutional investors and retail investors provided strong support to the markets at a time when REITs were selling significantly. Do you expect this trend to continue or could the ongoing decline affect these entries as well?

SM: Domestic capital inflows are also at risk as the market fails to generate returns. Retail flows are very dependent on investor sentiment and may slow down now.

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BT: If you had to choose 3-4 sectors with a medium-term investment horizon, which would they be? Also, areas to avoid.

SM: We favor sectors geared towards the medium-term domestic market – Financials/Consumer (Basic/Discretionary). The theme will be choosing management that can execute effectively and benefit from India’s structural promise

BT: Is now a good time to look for potential multibaggers in the small caps, or is it better to stay cautious and go for the blue chips?

SM: In general, mid cap valuations always have a significant premium over large caps. It might be better to wait for better entry points.

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