Why markets may correct further?

We have witnessed some volatility in markets during March 2015 it may remain so for some period due to many reasons. Explanation of these reasons is as below.

Indian markets have performed very well for more than one year. NIFTY touched its highest level of 9119 in March 2015, which is a rise of 78% from its low of 5118 level in August 2013 without giving a single correction of 10% or more. It is not a healthy sign for any kind of trend & signals toward a correction.

RBI did its second rate cut of 25 basis points on March 4. It was also the day when markets touched its life time high of 9119 in early trades. But it could not maintain that level and closed in red mark at 8923. It was a major trigger for markets to lead it to further highs, but it failed to do so & since then markets have corrected 8% from its high.

Untimely rains in India have ruined 1.81 crore hectare crops of most of states of India so far. It is going to impact the inflation in times to come which RBI has brought under the set targets with so many attempts and so much difficulty. It may also delay the further rate cuts. Also it has hit the farmers heavily which will lead to loan defaults. It will further hamper the demands in different sectors due to less spending by rural India.

Corporate earnings have still not picked up & dismal earning growth will be witnessed for current quarter too. Markets have grown at much higher pace as compared to earnings growth from past 2-3 fiscals continuously. It is not good as markets are slave of earnings.

Europe has still not recovered as demand in euro zone is still not picking up. China and Japan are also facing downtrend in demands. It will hurt the export led sectors of India. Also currency war is under process in the world. INR has remained flat as compared to USD but has appreciated heavily against the baskets of currencies of other countries. It will further hamper the competitiveness of Indian export companies. Also, US may hike interest rates this year which will lead to some volatility in foreign inflows in India. All these global factors are also indicating the volatility ahead.

Due to all these reasons markets may remain volatile for some period and may correct further from current levels.