May 04, 2012 07:42 PM IST | Source:

Experts cry 'mayday!' as Nifty sinks below 200 DMA

To say it was a disastrous day for Indian equities is an understatement.

Moneycontrol Bureau

To say it was a disastrous day for Indian equities is an understatement.

Statements from the Minister of State for Finance SS Palanimanickam on the Mauritius tax treaty resulted in an avalanche of short selling on Dalal Street, as investors feared the market would buckle under increased selling pressure from foreign investors.

Apart from fears of the double taxation avoidance treaty (DTAA), bears were spurred on by the rupee’s sharp depreciation as well. After breaching the 53 mark yesterday, the greenback raced its way to 53.73 to the dollar, its new four-month low. The widening trade deficit and policy paralysis did not lend a helping hand either.

Over 300 points and one important support level later, the Sensex ended the day at 16,831. Meanwhile, the Nifty fell below its 200 day moving average (DMA) to end at 5,086.

Future Tense: To buy or not to buy

Looking at the condition of the economy, Rajen Shah of Angel Broking sees 10% downside from current levels. “The market should logically have been between 15,000 and 16,000,” he said. Therefore, his focus is on value stocks, especially from the midcap space, and not growth stocks.

On the other hand, Sandeep Shah of Sampriti Capital sees a buying opportunity in defensive names like FMCG companies. “Even over the last couple of months when the market has come off a lot, the so called defensives continued to grow between 15-25%,” he explained.

Technical analyst Sudarshan Sukhani of believes current levels on the market are not attractive. Because of all the uncertainty in the market, he says it’s time to close all positions and stay on the sidelines. While today’s fall was a lottery for short term traders, Sukhani says it’s best to book profits and step aside. “Do not go short any more except for the Bank Nifty where more weakness is evident,” he said.

However, Dilip Bhat of Prabhudas Lilladher has a positive view on the market. He says most negative factors have been factored in at current levels and that any small trigger could spark off a rally. "Be it on the rupee front, oil front or some clarification on GAAR, it could spark off some kind of rally which will push the Nifty to around 5,500 levels,” he said.

Rupee Trouble

The currency continues to be a concern for the economy, and the effect was clearly seen as exports for the month of March contracted for the first time since 2009. Demand from oil importers pushed the rupee to a new four month low of 53.80 to the dollar today, but RBI intervention helped the greenback rebound to end the day at 53.47.

The speed at which the rupee has depreciated has been a worry for the central bank, forcing them to intervene in the foreign exchange market both today and yesterday in an attempt to curb volatility.

According to Jan Lambregts, Rabobank International, the dollar-rupee has more downside because of India’s widening current account deficit. "The fact is that even the US is fairly unexciting, so that also extends then to the Indian rupee," he added.

However, Soumyo Dutta of Citibank feels the rupee’s current move is a little stretched. He believes that people have already come to terms with the trade data and the 4% current account deficit figure, so he says the moves cannot keep on stretching on one direction indefinitely.

But is there a chance that we could see 54.30 on the dollar-rupee soon? The answer to that is probably yes. And if that does come about, the negativity could trickle down to equity markets as well.

Anisha Mappat

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