Dicey cos may clean up books post Satyam: Dipan Mehta

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The benchmark indices continued the downtrend for the second consecutive day and ended sharply lower amid high volatility.The 50-share NSE Nifty shut shop at 2,873 down by 1.62% or 47.40 points from its previous close. The 30-share BSE Sensex was down more than 300 points during the day and touched a low of 9,250.82. It was down by 180.41 points or 1.88%, to settle at 9,406.47.

 

Dipan Mehta, Member of BSE and NSE, said - after the Satyam incident - a host of midcap companies and some belonging to dicey sectors may now clean up their books before the January results come out. "There is a good chance that a lot of managements may take the opportunity of extremely poor performance and try and do some cleaning up of their books. That could result in their performance being worse than what the market is expecting," he said.

 

Here are experts on the Satyam imbroglio, its impact on markets, on levels at which the markets could now trade.

 

How will markets pan out?

 

Dipan Mehta said the possibility of a pullback is now diminishing with every passing day - especially after the Satyam jolt. Mehta added it appears the FII flows have reversed and are now going out. "The way the markets have been trading today - on such heavy volumes - and the kind of stocks that cracked, it is clear that the foreign institutional investor (FII) flows, which were positive till about two trading sessions ago, have turned negative."

 

Mehta added that the market is likely to trade in the 2,700-2,800 band. "Then, we have this [quarterly] earnings season [in January] to account for, and it is going to be a bit difficult to exactly predict the news and make a call," Mehta said. "My sense is: it is going to be pretty tough going over the next few trading sessions."

 

Strategy to trade Satyam

 

Trading in Satyam, Mehta said, is now akin to a call option: "You pay the premium and you are exposed to all the upsides whichever there are if at all, otherwise it goes down to zero."

 

"My sense is," Mehta added, "depending upon how the regulators and the management will manage the situation, and whether Satyam is able to get a saviour for itself, the value could be much more than Rs 20. Otherwise, we all know it can go down maybe Rs 2-3 or to a few pennies as well."

 

Life after Satyam

 

"If before the Satyam incident, you were expecting results of a whole host of midcap companies and some of the dicey sectors to be bad, after the Satyam incident, it has only got worse," Mehta said. "There is a good chance that a lot of managements may take the opportunity of extremely poor performance and try and do some cleaning up of their books. That could result in their performance being worse than what the market is expecting."

 

Mehta added that auditors will also be on their guard post the incident. "Imagine the reaction of auditors in circumstances like these and how much deeper they would go into the accounts. Let's just keep our fingers crossed that there is no major accident of the type that we saw in Satyam."

 

Vital technical levels

 

Sudarshan Sukhani of Technical Trends said the Nifty had been trading rangebound - of which 3,150 was the top and 2,800 the bottom. "In a trading range, we have waves of optimism that takes the market to the top of the range and then something suddenly happens and the market comes to the lows of the range - as we did today at 2,800," Sukhani said. "At this point, while it certainly seems easier for the market to fall below 2,800, it has not done that yet - maybe the earning season will cause that trigger. Below 2,800, we should expect new lows to occur."

 

General disclosure:

 

It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.