The sharp fall in the magnificent seven US tech stocks seems to be sending ominous signals to global markets. The US markets were seemingly on a roll, hitting new highs even while market watchers were cautioning on stretched valuations of the big seven tech stocks. The sharp cut has definitely made investors cautious. Investors seem to now feel these stocks could further correct and are more inclined to accept that the technical does not support a quick recovery.
But, on the macro front, the Federal Reserve seems to indicate a likely cut in interest rates in September with more follow-through action. The stance on inflation is also indicating moderation of rates.
Indian equities seem to be still riding the wave of domestic liquidity and strong global market sentiment. A recent speech by a top-ranking regulator mentioned that the supply of domestic issues is far lower than demand and we will need issuances of at least Rs.1,00,000 crores to bridge the gap. If more supply of domestic paper happens through QIP, IPO and OFS, this will significantly cool down domestic valuations and mop up the excessive liquidity. Softening global valuations should also see a further reaction in domestic stock valuations.
This should only mean further volatility in the coming weeks. The markets will swing between global trends and domestic liquidity changes. The anxiety to invest and the fear of missing out are still playing out in the domestic market. Discerning investors are waiting in the wings to enter the market if they get a good correction. The coming days will be very interesting for Indian equity markets.