Mkts fear liquidity tightening; volatility to continue

The Nifty recovered over 100 points to close just 70 points lower at 4,333. The Sensex shut shop just 232 points lower at 14,868. It had hit a low of 14,570 in early trade. 

The US subprime mortgage worry continues to haunt, it started with Europe yesterday and moved to US, today Asia ended with deep cracks and it down around 3%. 

Realty, banking and metal indices were the worst hit, down 2.5%. FMCG, auto, pharma and oil & gas indices were down 1%.

Ambareesh Baliga at  Karvy Stock Broking  thinks the recovery can be credited only to some of the IT stocks, otherwise the weakness remains. He said, "I do not think that people are actually doing value buying at this point of time, because people are still afraid that there could be tightening on liquidity."

Technical Analyst Ashwini Gujral believes the bulls seem to be slowly giving up and all the brave buying is slowly caving in. He said, "It is quite possible that we remain volatile between 4,265 and 4,530 before the next down leg starts, which could take us upto 4,000-4,050. Bullishness should only come in case we are able to sustain 4,530, which was the high yesterday."

Market Analyst Gul Tekchandani has a different take on the whole speculation and volatility in the markets. He believes nobody really knows what is happening and it is all pontification. He said, "When there is negative news in the market, it's calibrated down as if the world is going to come to an end. And when it is positive, the other way happens."

So he advises that if you believe in the businesses that you invest in, you should be willing to take a little bit of hit, because you cannot predict this volatility, however smart you are.

Data coming out from the futures market shows that short positions are getting built. Dipan Mehta , Member of BSE & NSE said, "The fact that it has recovered from the bottom is quite confidence boosting, but some observations from the last two-three days of trading is that the FIIs do not seem to be pulling out. If you aggregate their volumes, net purchase sale in the cash market and the futures market, net-net they are neutral and that is positive. It brings some amount of confidence into domestic players."

"I think the key thing over here is that this US subprime problem is not going to impact corporate performance and a lot of long-term investors take that into account while they are making a decision at this point of time," he adds.