Finding The Market Bottom

BSE Sensex is approximately 4 per cent down from its all-time high levels. Market stability is important for investors as stable stock prices encourage higher participation. With 2023 starting on a volatile note, it will be interesting to understand if there is further downside in the markets and most importantly what the market bottom in 2023 could be. Yogesh Supekar highlights the various ways one can identify the market bottom

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Why buy now when you know the stock prices will or let's say may come down? It is observed that investors often hesitate to invest when the market sentiment is weak and when there is a probability of market correction. Market sentiment is perceived to be weak when the stock prices fail to react to positive news. In December 2022 and even in January this year so far, the macroeconomic news flow has been positive, both locally and in the US, and yet the BSE Sensex has slipped by almost 4 percent since December 1, 2022. The last two months may have confused several investors as the market slipped despite positive data.

This explains the market dichotomy very well and suggests how investors get trapped by such contradictions in the market. Normally, on the back of positive news the market should have edged higher or at least remained stable but instead, it slipped swiftly. We know now that FIIs have been withdrawing money and the source of selling pressure was from the FII desk. There are a few genuine concerns facing the market and one major event in the short term to deal with. The major concerns include the rapid increase in interest rates and its impact on the profitability of corporates which will start getting reflected in the upcoming quarters as well as the fear of recession.

Meanwhile, the Union Budget is the major event in the near term which may induce market volatility. In such an environment it is difficult to bet on market direction. One of the most important factors that investors need to keep in mind is the impact of the rising interest rates on the market in the medium term. While the short-term and long-term market outlook may look bullish, in the medium term the market may start factoring in the negative impact of rising interest rates. It must be noted that the US Federal Reserve has increased the interest rate to 4.5 percent now and another 0.25 percent rate hike is scheduled for February.