Volatility observed in global financial markets

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- So far the Indian stock market is in a good position but the attitude of foreign portfolio investors is cautious

Political and geopolitical uncertainties will continue to dominate investors' general economic views into mid-2024 or beyond. Global financial markets are also facing volatility due to the conflict between Israel and Hamas. This has raised fresh concerns over fuel supplies and will further affect activity in an already struggling global economy. As far as India is concerned, domestic political uncertainties can also cause a sharp change in trends. The trends seen in the performance of the corporate world in the second quarter will also be carefully analysed. Any concerns on this front will have a profound impact on trends.

Crude oil and gas prices have already risen due to the Israel-Hamas conflict. Ukraine war is affecting the market. Due to this war there is a shortage in the global food market. Now the situation will worsen due to Israel-Hamas conflict. Amidst these things, China's growth rate is slowing and there real estate and manufacturing sectors are a matter of serious concern. The huge debt of big real estate developers like Evergrande in China has become a cause for concern. A rise in fuel prices could increase inflation and also put pressure on the external deficit and the currency.

Some corporate analysts believe that consumer sentiment has improved despite the erratic monsoon. Considering the election-related expenses and the upcoming festive season, the second half of FY 2023-24 may see an increase in consumption.

India's stock market is in a good position so far but the attitude of foreign portfolio investors is cautious. Statements by the US central bank Federal Reserve are of a tightening nature, so monetary easing cannot be expected anytime soon. In the last two months, foreign portfolio investors have invested Rs. 22,700 crore has been sold. Earlier he had bought heavily. In 2023-24, he spent Rs. 1.38 lakh crore was also purchased. The change in its stance came when the Fed started tightening its statements.

Apart from mutual funds, other domestic institutions are also buying at a steady pace. Mutual funds also continued to see steady inflows, indicating that retail investors are still positive about stocks. Small caps have also seen buying and primary market activity has improved. Both these things show that the retail sector is getting stronger. In the current geopolitical scenario, the Reserve Bank will not change its stance on monetary tightening, though it may keep interest rates on hold.

Another big issue for most investors will be political stability. India is heading towards crucial assembly elections followed by general elections in April-May 2024. Investors will also remain uncertain about future policy until the next government's picture is clear.

This will change only after the shape and form of the new government is announced. Talking about valuations, Indian markets are not exactly cheap right now. However, major indices are valued at average price-to-earnings multiples below historical highs. In such a scenario, volatility is expected to continue until the global situation improves and the election season is over. Investors should exercise caution in these circumstances.

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