Volatile markets: Factors investors need to track

The markets are going through a volatile phase since the last few months due to several factors at the domestic as well as global levels. The developments at the global macroeconomic level drive sentiments of large global investors. Therefore, it is important for investors to track the significant developments around the world, and analyse their potential impact on the domestic stock market sentiments.

You can classify global developments into two categories. On the one side, there are those that do not directly impact the economy. On the other, there are triggers that have a direct impact on the prices of goods that are commonly-used, and hence have a direct impact on the economy.

Global economic developments

There are several factors that influence sentiments of global investors. There are many global developments (ranging from the US unemployment data to crisis in West Asia and Europe, and monetary tightening in China) that influence the short-term market sentiments. Therefore, short term investors should track them closely. In general, medium to long-term investors need not be too critical about short-term movements. They should follow macroeconomic trends that may influence sectors or stocks in general, and use them to make entry or exit decisions.

Volatility in global commodities

The prices of global commodities have been quite volatile in the recent times due to various factors at the global level as well as speculative plays. Investments in commodities have been used as hedging instruments by large global investors against sovereign and currency risks. It is important to track the movements in global commodities as they have the potential to drive the global inflation rate, and destablise economic growth paths.

In general, the domestic economy is favourably-placed with respect to the global point of view barring some concerns related to inflation. The stock markets here are expected to continue their out-performance. Therefore, long-term investors should analyse the economic and business conditions carefully and make the necessary adjustments in their portfolios.

Investments in stock markets

In general, the markets are expected to remain firm and rally further from the current levels, barring the regular correction phases. However, investors should track the rising interest rates and their positions in interest rate-sensitive sectors. Sectors that are expected to remain favorable include technology, FMCG, infrastructure, and energy.

Investments in commodities

There has been a sharp correction in the commodity markets in the recent past due to turbulence in the global markets and unwinding of speculative positions. The recent correction has brought valuations closer to fundamental values and hence investments in commodities look attractive. Investors can look at investing in commodities from a portfolio diversification perspective.

Investments in debt instruments

The yields from debt instruments have gone up due to the high interest rates being offered. Both global and domestic factors are expected to keep fuelling the inflation rate in the short to medium terms. Hence, the interest rates are expected to rule high. Risk-averse investors can look at reducing their exposure to equity and other risky assets, and diversify with debt-based instruments.