800 points down but the market is well off the lows of the day, if you want to catch on to a silver lining. Just a little over 18,000 on the Sensex and 5,400 on the Nifty. We had plummeted to really abnormally low levels in the middle of trade today. The market suddenly fell without a bottom, about 1500 points, went down to about 17,500 and from there we have clawed back to 18,200.
There has been some buying at lower levels in many largecap and midcap stocks. Having said that, the midcap index is still down 7.25. So, it is on the mend. But as we have seen in the past, these pullbacks are continuously getting sold into. So, it’s difficult to say with any degree of conviction whether we have seen the worse for the day, though it is likely the way we had plummeted suddenly.
Q: Even if the Sensex and Nifty get away with some kind of pullback, the broader market will be left with a gapping hole?
A: Yes, that is the problem and that was the anticipated problem, that it would be in liquid stock futures, it would be in midcaps and smallcaps. The way some of the midcaps have corrected by 15-20% today, I think there is a lot of blood out there on the street.
When one gets a whack like this, we came close to a circuit down market today, it is difficult to get up and run very quickly, particularly when there’s been a lot of greed out there which has suddenly turned in just two days. So I think people would have lost money in the last couple of days, which is quite discouraging. I wouldn’t be surprised if a combination of margin calls, a cut down of leverage, etc can see some resurfacing of cracks that we have seen today.
For the day, the crack was so wide that it’s entirely possible that we do not go back and revisit those lows, but even a close around these current levels is bad enough. We have got crunched down in just a few days from 6,300 to 5,400, that’s bad enough. I don’t know about the day, whether it is prudent to buy or sell now, but I think we haven’t seen worst of the pain, maybe in select midcaps there could still be a lot of pain because people would have got hurt in the fall of last couple of days, in the futures market specifically.
Q: One word on what the market is going to watch more carefully now, because we were talking about the fact that it doesn’t matter so much what the Nikkei or the Taiwan does, but much of Asia is lumbering quite hard under selling pressure this afternoon?
A: That only adds to the strain on our back. If it was a situation that the globe had stabilised and everything was pulling back, then at some point, our fall might have been sentimentally arrested.
Next: Has the recovery begun?
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People would have figured out and said, “okay we had fallen quite a bit, but now we are pretty much inline with the emerging market basket for 2008, we don’t need to fall too much more.”
But as long as people keep on seeing red on the global screen, and more importantly, as long as the FIIs selling continues abated, as it looks like the case even today, I think we have got a bit of a problem on our hands because, two parts of markets are selling FIIs are selling both in cash and futures and retail is sort of going belly up now. These are two most influential parts of the market, who set prices.
Domestic institutional investors might be buying and their size cannot be scoffed at, but they are not price setters. The most aggressive sellers and buyer generally tend to be either retail or FIIs, and both seem to be on the same side now, which is on the sell side. It’s a challenging situation, difficult to call levels and I think one should not make the mistake of trying to map this market with technicals at this point in time. It may have worked on the way up, in a nicely trending market, but it’s clearly not working right now.
One needs to be a bit careful about what they are doing because I don’t think one day has washed away all the pain that is there to unwind in the futures market. I still think there could be more by way of unwinding. It’s now a question of how aggressively some of the local insurance companies, maybe some of the FIIs, because now they are seeing 18,000 after long time, they come into buy good quality stocks. I think the turnaround has to happen from there. I don’t think retail in itself will come back and buy in a big way just yet.
Q: The standout feature of the market has been that there is no real attempt at any kind of recovery?
A: I am not surprised. I think the sporadic recoveries are happening because the local insurance companies and the new NFOs would have been buying. But they are buying because they are getting good prices. They are not buying because they want to support the market, as a large operator would want to do. So, I don’t think it is in their interest to hold the market up. They are happy taking the stock that they are getting at good prices.
In that sense, they are not aggressive price setters. The price setters are all on the sell side today. At every rise, either operators are shorting, or FIIs are shorting, or FIIs are liquidating in the cash market. Retail of course has been panicking through the day. There is clearly a constant supply of paper coming at every high level. That’s exactly what one would have expected to see now.
So, the whole game has changed right now. Till Friday, a lot of traders would have said okay buy the dip because we are going to get back to 6,400. Now, they are selling every rally, however small, 50-75 points on the Nifty, take it. Go short again, wait for the next bounce to come and then get in with another wave of selling. That has pretty much become the pattern of the market.
I think now that we are at 17,800, my sense is, forget about the bad news, a lot of it has played out already, and you tell yourself, “My buy zone is between 16,000 and 17,800. In this 1500 point zone, I’m going to go out and buy some serious stock.” How one does it, how one staggers it is a different matter.
I think it is an interesting price point, who would have thought that the market would give you something like 17,000 price point quite so easily. You’re getting to the point where you are getting some interesting prices, if you are not already getting some interesting prices. But, since there is retail panic and extreme fear right now, prices may go to lower levels.
17,800 could go to 17,000 or 16,500. It is entirely possible in the next day or two. If that happens, you will get even better prices. But I think this is a good accumulation band, around that 17,000 mark, give or take a few hundred points either side. That’s when you need to start putting some money to work with the full knowledge that the market can go to 16,000 quite easily.
However, I think investors are now getting closer to the end of the market where value is beginning to emerge. I know it is a tough thing to say in a market that is down 1200 points, and the suggestion is not to go out and buy buckets today, but investors now need to identify the stocks they are going to buy and they they will be buying through the next 1000-1500 points, to get really good average prices, and then just hunker down. It doesn’t matter if the market falls to 15,000.
I know around certain levels you will see all sorts of proclamations saying that the bull market is dead, over, done with. Bull markets don’t end with two days of price damage, neither do they end because some technical level has been violated. I don’t care whether it is a 50-day moving average or 200 or 400-day moving average.
The bull market is not about moving averages or technical price points, it’s about fundamental underpinnings and I don’t think that has changed in the last seven days. What was going on was madness in the market, that had to correct and that is correcting, which is good.
Next: Will it lead to another wave?
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So, you get to a point now around 17,000. We’ve got to start accumulating. It doesn’t matter if the market goes to 15,000. I think I would stick my neck out and say that the market, by the end of this year, regardless of what happens in the US, would be a whole lot higher. So, this is the time when you need to be brave. Not brave in one shot, as in not just go and spend your firepower at 18,000, but to just buy slowly and buy good quality stocks, because things will turn around. It is just a process of the madness correcting itself, no more.
Q: Some of our analysts were making a point that the last hour would probably see another wave because of this margin selling pressure. Does it seem that it is going to get a little more sticky from the face of it?
A: It’s entirely possible. When you’ve stare down the barrel at nearly a circuit, anything is possible. Could we could lose another couple of percentage points from here, entirely possible. Nothing can be ruled out because this is not a rational place right now. Like the movements upwards in many stocks was completely irrational, the selling right now has no basis in rationality. People are panicking and giving away whatever stocks they have. At that kind of a level, why 10%, the market can go down 15% if allowed in a single session.
Something has to come and arrest this fall. I don’t think there are enough buyers that are standing today, who are going to arrest that fall. Maybe sanity will prevail maybe tomorrow when people wake up and see the prices which are flashing on the screen, which look quite unreal to me compared to just about a couple of weeks back. When prices go very far away from fundamentals, often the correction is quite sharp and sharper than what many of us think.
But now we are not looking at just a fundamental valuation catch-up, it’s becoming almost a technical problem, which is exactly what we were fearing and talking about for the last couple of days, that what might have started with a global problem or with a fundamental overheating, would eventually always manifest itself as a technical problem in the market, because of the overloaded and overextended situation or position that we have found ourselves in.
Now we have come to that stage, where the technicals are adjusting. Once you come down to the technicals, they sort themselves out in 2-4 days.
That’s the nature of the beast. And when you see a complete technical mayhem happening in the market, you know you’ve come down to the last leg of the problem which is where people are not thinking, they are just selling whatever they have and you know that, at some point around these levels, value buying will emerge once again.
But you can never put a finger on where the technical pain will end, whether it’s today, tomorrow, Friday or next week, that’s absolutely impossible to say. So bottoms are by definition impossible to pick.
But I think now, as we see prices on the screen, some of these prices appear quite interesting to me. If I had money, I would, I think on a day like this, put 15-20% to work in many of the sectors because the story hasn’t changed.
But for the sectors that were going up for little reason like fertilisers, some metal stocks, in some brokerages beyond fundamentals, maybe in sugar, those have got whacked out of shape. But sadly some of the good quality stocks have also got pounded today.
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