Is the worst of the correction over on the Nifty and Sensex for now?

There are two ways to approach your question. The first is about the short term. Nifty closed on Monday at 17,149 with an advance decline ratio of 2:48 biased in favour of declines. The VIX has also spiked higher to 23 levels. Clearly, the short term trends in the market are weak and volatile. That means; further downsides cannot be ruled out although the fall has been just too rapid and event driven.

The question is whether the Nifty can take support around 17,000 levels. There is a temporary support at these levels, but it is not a very strong support. IT would depend on how strong the trigger for the fall is. For example, if the Fed talks really hawkish on Wednesday night then the Nifty could dip further. But this may not be the right time to take a very short term view.

Over a longer view, if you even assume that rates are hiked by the Fed, there may not be much damage to the Nifty. For example, between Dec-2015 and Dec-2019, the Fed hiked rates from 0.25% to 2.50% over several tranches. During these 3 years the Dow and the Sensex gave around 13% annualized returns, which is actually very good. So Fed rate hikes may impact in short run but in the longer term the impact is often overstated.

How should your strategy shape up and that is more important. Firstly, use these dips to buy quality stocks. I don’t want to get into specifics. But, for example what could be so wrong about buying Infosys or Reliance 10% lower than their October prices? Use a more allocation approach to stocks and you should come out a winner. For now, the volatility indicates that markets could just spray the indices all over the place.