It's been a scary start to the week with the indices suffering deep gashes. The broader markets lead the fall and the global markets too did nothing to help. From a peak at the 5,600 level last week, theNifty tumbled all the way below the 5,300 today losing over 148 points. Indian equities underperformed global peers today. The Sensex fell 477.82 points or 2.67%, to close at 17,445.75 led by selling in 28 stocks.
Meanwhile, the Nifty lost 148.10 points or 2.73% at 5,281.20, extending from previous week's 2% loss. European markets were down 0.7-1% while the Dow Jones futures dropped over 50 points.
So, is this just a beginning of a deep wound?
Investors and expert are nervous and worried that the pain may last a little too long than anticipated. Sudarshan Sukhani of s2analytics.com warns that the decline could go longer in terms of time and the correction is probably going to be fairly deep.
Agrees Ambareesh Baliga, COO, Way2Wealth that it will last long as in the last week there was no broader participation and no bull rally can actually last too long without it. Baliga suggests buying at around 5200 partially and then buy most of whatever one wants by the time the market comes down to 5000 levels.
Nirmal Jain, Chairman, IIFL echoes a similar sentiment pointing out that oil prices have firmed while rupee is at an all-time high which may add up to dampen the rally for long.
Though the correction was expected it's the nature of the fall that has unnerved investors who were positive on buying into dips. Prakash Diwan, Asit C Mehta Investment feels that interest will return to the market as it regains some strength. "5,200 would see a rotation of the stocks in the Nifty and the sensex but it would see some sort of a support coming through," Diwan reiterates.
"We had a very heady run, it's already been sharp but it could get sharper correction," adds Jagdish Malkani, Member NSE/ BSE.
'Oil'y woes
No doubt the market faced severe profit booking pressures but oil heading toward USD 130 per barrel too added to the woes.
Indicating that it is one of the biggest concerns that investors are scared of, Saurabh Mukherjea, Head Of Equities, Ambit Capital warned that if USD 130 is crossed then the Reserve Bank of India may cut rates by 60 basis points rather than only 100 basis points over the next six to seven months.
"It is playing on investors mind especially playing on the minds with regards to banking stocks and the broken balance sheet plays which has 60-70% in the calendar year today," Mukherjea adds.
Baliga too feels that the RBI is likely to be pressurised if oil prices touch USD 140 per barrel.
"Crude is the most important trigger because that will impact our monetary policy also. If crude oil prices remain then you will see headline inflation numbers also tend to go up and then given whatever RBI has done in last two years, people would expect that they will refrain from interest rate cut and a fear that they will start talking hawkish," Jain reiterates.
Triggers- UP election results or Budget?
There is a lot of hope building up for the UP election results scheduled on March 6 and the Union Budget on March 16. Most experts feel that both the big events are likely to give required impetus to the market.
"It could break those 5000 levels in case both the election results and Budget are negative. But all of us still live on hopes," Baliga elaborates.
However, Jain feels that the UP elections will result in a hung assembly. "What everybody is betting on is Congress along with SP will make the government, but if Mayawati comes back to power then market may not like it or if there is a complete chaos in terms of nobody in any position to make a government then also I think that will not be taken positively by the market," Jain adds.
Best bets
Jain suggests not to get into profit booking mode unless one is leveraged. He suggests sticking to defensives with no exposure to real estate, capital goods and infrastructure.
"Remain invested in defensives, which is FMCG, pharma and whenever there is a correction then probably you can take some exposure to banking sector, but there also one has to be very careful. If the market corrects further you can try and increase your exposure to banking, but other than that remain in defensives and very select IT sector," Jain adds.
Mukherjea advises that high quality balance sheet stocks are attractive while it is best to exit weaker balance sheet names especially banks. His bets are Voltas , Torrent Power and Tata Power .
Diwan suggests going for more defensives, especially the stocks that had run up much and have come down quite a bit as they will start offering decent valuations over reasonable long term perspective.
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