"In the next three months, we will find out if we are entering a global recession or not," Morgan Stanley Asia Chief Jonathan Garner said last week. He added, "We believe Indian markets are going to go lower".
This is a dangerous time for Indian investors - the recent fall in the market makes stocks look more tempting. But with both the US Fed and RBI raising rates, there is more downside to come.
Bear markets tend to outstay their welcome. After the subprime crash of 2008 for example, it took two years for the Nifty to reach its January 2008 levels (chart above).
US indices hit bear market territory on Monday, losing more than 20% from its January peak. Hot inflation in the US means the Federal Reserve may become aggressive with upcoming hikes - analysts from Citigroup to Jefferies and Goldman Sachs say a 0.75% hike in interest rates is possible on Wednesday.
And India, despite all we say about decoupling, correlates with US market movement and is battling a host of challenges.
Looking at the positive and negative factors driving the Indian market, the negatives right now outweigh the positives, and some of the greens below can turn red quickly. For example while corporate earnings are strong, rising costs and low demand in the coming months can hit bottomlines across industries.
Dollar earners have an advantage
Generating alpha in a weak market is a different ball game. The safer companies are likely to be those that earn significant export revenue, benefiting from a strong dollar. So IT companies with significant US market share, fertilizer companies and export refiners like RIL become more attractive to investors - once their valuations turn more reasonable. The companies most in danger are those highly sensitive to rising costs like consumer staples and discretionary.
Interesting reads (and videos)
How have superstar portfolios been doing? Tejas MD takes a look at Jhunjhunwala, Singhania, Kacholia's portfolio performance.
A jump in refining margins puts Reliance Industries in a sweet spot.