Aug 06, 2013 06:28 PM IST | Source:

What led to carnage today; where should you park money now?

Experts dissect key reasons for sharp correction in markets today and advise you on how to trade with stocks now.

Moneycontrol Bureau

Rupee terror continued to torment equity indices, as both Nifty and Sensex lost nearly 2.5 percent each in trade today. Poor economic data and dismal quarterly corporate earnings added fuel to the fire.

The rupee hit a record low of 61.80 to the dollar in the afternoon which tore into the fragile market sentiment. The Sensex closed at 18733.04, down 449.22 points and the Nifty ended at 5542.25, down 143.15 points.

“Basically it is rupee and at the same time you are also hearing of defaults across. We also have had a number of well known companies coming down quite sharply by 70-80 percent - for example, Gitanjali Gems, Financial Technologies and MCX. When such things happen clearly that trust deficit actually comes into play and people do not want to trust any management and invest at this point of time,” Ambareesh Baliga, Edelweiss Financial Services told CNBC-TV18.

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Dipan Mehta, Member BSE & NSE said that forex market is the overriding factor for today’s sharp fall. “I think most players are extremely surprised that despite all the various steps taken by the Reserve Bank of India (RBI) and the government still the rupee is showing no signs of coming in control and curtailing its slide. So what we are seeing now is a bit of panic taking over the markets,” he said.

Even large caps which were helping benchmark indices to stay in 5550-6000 level cracked today. Good stocks like HDFC and IndusInd Bank had to take beating for being in the wrong sector, Mehta observed. “Clearly this seems to be a foreign institutional investor (FII) driven selling considering that these are the stocks which are over-owned by that class of players,” he said.

He also pointed that there is no countervailing force for FIIs in the domestic market . Local insurance companies, local banks, even domestic mutual funds do not have adequate firepower to kind of enter in this market and soothe investor nerves.

Despite today’s carnage, most experts believe that market will get support near 5500 level.  Technical analyst Rahul Mohindar, pegged support at 5480-5500. “I rate that really as some kind of a short-term support considering you have seen a catastrophe in terms of price erosion over the last two-three weeks. So you might get that 2-3 percent bump up from those levels,” he said. Baliga too agreed that there could be a temporary bounce back, which would help market to hold on to 5500 level. He, however, expects market mood to remain cautious to bearish.

Mohindar too believes that weakness will prolong in the market. He sees Nifty testing lower level of 5300 level eventually.

Mahesh Patil, Co-CIO, Birla Sun Life Asset Management Company explained that RBI’ stance reversal on interest rate also caused sharp reaction in market. “All the estimates in terms of a growth outlook what we had for this fiscal year have changed dramatically and especially with short-term interest rates around 10 percent, equities are no longer that attractive on a risk adjusted basis,” he said.

Where should you invest money now?

Private banks, FMCG, information technology and pharmaceutical stocks were the only pockets, which have been gaining in this volatile market. Patil expects software and pharma companies to continue gains, but he advises to avoid FMCG stocks following slowdown earnings due to lower demand.   

He expects markets to remain rangbound with no major upside or downside. But he clearly believes that current phase of high interest rate is unlikely to last long.

“It might be 3-6 months period and then we will see rates coming off and that is the time when again you would see kind of a bottoming out phase and markets could then start to look up,” he noted.

Patil believes that this is a most appropriate time for long term investors to gain start scouting for good stocks.  “Clearly valuations are now starting to look attractive, especially in the midcap space where we have seen a decent correction. Focus on individual stocks, companies where there is clear earnings visibility, where balance sheets are strong,” he said. It is also a delight time for fund managers who can go cherry picking stocks to build a strong portfolio, which can outperform the market in the next few years.

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