Underperformer sectors may see further fall

CNBC-TV18s Executive Editor, Udayan Mukherjee -

The market as has becoming very polarized. Some sectors are getting punished and some sectors are standing out and doing well. So if one has to be in the markets, I suspect one will have to just take the bets on the stronger sectors. I don’t know whether because of the news, which has come from the US whether IT also goes for a bit of toss this morning but IT is a strong sector. But the question for the Nifty traders is also to what extent IT can support the market or cushion the fall in the markets because for the last few weeks or months a larger number of components of Nifty have been slipping down quite a bit and even touched January and March lows. However, it is only because of IT space, markets have been held out. Possibly this morning Nifty may fall below its Jan-March low.

The big question is whether IT can support the market or because of this bad news from the US and the DOW breaking down, IT also retraces a bit, which would be terrible news.

The other strong sector aside of IT has been upstream oil, there I think the uptrend continues in oil as a sector. However Reliance is the joker in the pack because Reliance is trading at Rs 2,230 and the January lows, the lows for 2008 are Rs 2,120, so lot of people are watching the next Rs 100 on Reliance and if Reliance breaks down below those levels then we have got a big problem in the market because Reliance is the big pillar for the Nifty and we don’t want to see it breaking below the January lows because that will send bad signal to the traders.

For weaker sectors what is going on is an inevitable compression of ratings or valuations for some of these sectors. Capital Goods despite falling quite a bit might continue to under perform and might skim of bit more of the valuations froth which existed out there. Some of them may still be great businesses but I think the market may value them quite differently in the light of expectations. So I won’t be surprised if capital goods, power correct more and real estate in spite of getting decimated might also correct because much of the froth is gone but more might need to go. Even though the banking sector looks very good value in some pockets will not out perform in this kind of environment.

So the under performers much that one is tempted to say have fallen quite a bit, one should be buying in that space but those are only for longer-term investors. Right now the ones, which are going down might probably, go down a bit more.