Mkts collapse; experts expect volatility to continue

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It was an extremely weak and disappointing session for the markets after yesterday's surge. There were rumours floating around that some hedge funds in Europe and Asia could be in trouble. The mere whiff of it sent most global markets into a bit of a tizzy. There were also concerns that the Left may withdraw support to the government which may result in mid-term polls.

 

The Indian markets have been amongst the worse performing in Asia for the past two days. Asia indices opened in green but came off the highs and Dow also closed flat yesterday suggesting some weak cues.

 

The Indian markets opened in the green and saw a sharp fall during the last few hours of trade.

 

The Sensex saw a fall of over 400 points, breaching the 14,000 mark while the Nifty fell below the 200 daily moving average in intra-day trades. The Sensex ended the day down 438.44 points, or 3.04%, at 13,989.11 while the Nifty closed 134.15 points, or 3.19%, at 4,074.90. About 654 shares advanced, 2,298 shares declined, and 54 shares remained unchanged.

 

The broader markets underperformed the frontline indices showing a savage cut of 3%. All the BSE sector indices closed in red and among the worst hit were bank, IT, telecom and realty stocks.

 

The BSE Midcap index fell 208.55 points, or 3.29%, at 6,134.23 while the smallcap index closed down 293.91 points, or 3.75%, at 7,538.45.

 

The BSE Bankex was down 4.4% at 7,324.30. Kotak Mahindra , Federal Bank , SBI , Andhra Bank , Canara Bank , and ICICI Bank were the biggest losers in the banking space.

 

The BSE Realty index lost 4.6% at 6,844.63. Indiabulls Real , Parsvnath , HDIL , Sobha Developer , and DLF ended in the red.

New-listing SEL Manufacturing Company , which started the day on weak note at Rs 87.9 on the BSE at a discount to its issue price of Rs 90, ended at Rs 164, up 82.22%. While Central Bank of India , which debuted with 29% premium at Rs 131.8 and surged to a high of Rs 135 on the NSE, ended the day at Rs 115.30, up 13.04%.

 

Mahesh Patil of Birla Sun Life Mutual Fund said "We are in for some volatile times now. We initially saw the US sub-prime problem which affected the markets and then subsequently the political uncertainty which is again creating an overhang. While we were coming out of the US sub-prime crisis, which affected the global markets, the domestic uncertainty is further compounding the problems and that's creating the volatility. One should see how the developments happen over this week. The fact is that it may remain volatile for the next couple of weeks."

 

Patil feels that retail investors should use these dips as a buying opportunity. "For a retail investor who is looking at a longer term, I think the market is fairly valued at this moment. It is not overvalued. The short-term uncertainty, which is there, and the volatility would create some amount of pain in the short- to medium-term. Over the longer term, the underlying fundamentals of the Indian market are pretty strong. One can expect around 15-20% return over the next one year. I would advice retail investors not to panic and stay invested. If there is a correction in the market, people who have not been able to participate in the market can use it as a buying opportunity. Over the medium- to longer-term, one should expect better returns from the market," he added.

 

Anil Manghani of Modern Shares & Stock Brokers said the speed of this fall was probably unexpected as the markets touched a low on Friday. "I think a retest is a must. We had that in February on a couple of occasions. We have a double whammy, we have a situation where the charts are weak, and we need to come back and retest. But now we have the whole political problem and nobody really knows where we are going with that. If you ask me without any political problem what is the worst-case scenario, I would probably say 13,673 and may be even 13,200. If we have a situation where the government falls, then it's anybody's guess because it becomes a free for all. I hope we don't get into that situation and the market actually bottoms out in this 13,700-13,200 range. That would be an ideal investment opportunity provided that we don't have any political problems," he added.

 

R Rajagopal , Head of Equities, DBS Chola , said, "Only two parameters affect any equities market globally. One is the corporate fundamental endemic to the particular geography and the second one is local liquidity, which includes both the domestic as well as FII money that comes into any economy. The Q1 results have again given a very good confidence to our own economy. Most of the results were above expectations. We are currently trading at 17 times FY08, which is attractive because corporates are still growing above 20%. The second parameter that is taking a toll in today's market is global liquidity. As we globalize to a great extent these days, we will also suffer because of that. The fall in midcaps indicates that a couple of speculative position by domestic players would have also got unmoved today adding to the chaos in the market. By March 2008, you could see definitely see substantial improvement from current levels."

 

Vikas Sethi , MD, Sethi Finmart , said, "The recent meltdown in global equity markets has been triggered by a credit crunch in the US sub-prime mortgage markets and has been aggravated by the unwinding of the yen carry trade and the risk aversion for emerging markets. The sub-prime issue in itself would not have a direct impact on India but it would certainly impact the overall environment like the widening of credit spreads, the falling risk appetite and the rising real interest rates. We certainly have a domestic factor on our hand to cope with the political uncertainty, which has started glooming over the Central government because of the Left front frightening to withdraw support from the government."

 

He feels that if the markets correct by another 5% it could offer a good buying opportunity to investors. "If we correct by another 5% and come down to around 13,500 levels for the Sensex, it would present an attractive opportunity for long-term investors to get into the markets. My advise to investors would be to start nibbling and adopt a staggered approach towards putting in funds for the long-term. They can at least start putt in 25% of their investible funds in the markets right now and keep investing at every decline," Sethi added.