Markets across the globe are riding on a wave of heightened volatility. October has always been a spooked month for stock markets, and this time around a fair number of demons are enabling it become a reality.
This month, the IMF projected a lower global growth rate. It will also be the month when the much choreographed end of the quantitative easing programme should take place. The U.S. Federal Reserve provided an artificial boost by purchasing mortgage-backed securities, Treasuries, and other fixed-income assets, spending as much as $85 billion a month. It is to be terminated this month.
Then there is the fear that governments and central banks have failed to anticipate a weakening in the global economy and European economies may start faltering. A likely recession is Europe is compounded by slow economic growth in the U.S. Global recovery may now be in jeopardy. To add fuel to the fire is the anxiety over the spread of Ebola. All this has put the stock markets on edge. And we are not even getting into the host of geopolitical hazards.
VIX hit its highest level since late 2011. VIX is the Chicago Board Options Exchange’s index of volatility, sometimes referred to as the “fear index” or the “fear gauge” of the stock market. When the VIX skyrockets, it is a sign that investors are attempting to insulate their equity portfolios from steeper losses. Basically, it means that market players are buying options contracts.
The Indian stock market did not escape unscathed. The global turmoil took its toll. All-round selling in scrips across sectors saw the Nifty and Sensex close at their 2-month low today. Not a single sectoral index on the BSE escaped. The India VIX Index jumped 13% to 16.4.
This roller coaster ride will most probably continue for a short while. The message in all this noise: Stocks are becoming riskier in the near term. Investors would do well not to panic and act out of fear.
The country has strong leadership at the central bank and the Centre. Crude oil prices are low. Steps are being taken to tackle inflation. All along the market was driven by sentiment, but now the earning numbers should give it that boost.
Morningstar’s equity analyst Piyush Jain believes that few sectors such as consumer, pharma, auto and banking will put up some good numbers. Mining and energy may be subdued while industrial could see a small pick up. He also believes capex will take off the ground.
Don’t panic. Don’t rush to offload your equity investments. Stay grounded. And, if you have a systematic investment going on in funds, continue.
