Monsoon: Mkt sentiment truly broken down now

On Nifty:

I think we are very precariously poised now because even when the correction started, everybody had set their eyes on 4,400 kind of level. That is the first major support for the market. We have closed virtually at those kinds of levels and we will probably start around those levels this morning. If that level is broken, that broadly 50 points this side or that of 4,400 then I think all that talk of getting back 4,000 or 4,100 levels on the Nifty again will gain currency.

So far people are not talking about a revisiting of 4,000 where we bounced from last time around. We went to 3,950-4,000 levels and there was a sharp rally to 4,700. Now we have retraced and come back to the midpoint virtually at 4,400 but are we going back because of the monsoon pressures back to 4,000 levels that is something which the trader is figuring out.

But if we do close below 4,400 decisively, I think people will slowly start reorienting themselves for a retest of those 4,000 kind of levels because the environment has clearly turned, some of the leader sectors for this market, autos, fast moving consumer goods (FMCGs) etc which were going up because of good numbers, they are leading the fall on the way down because of the rain problem. So clearly we are in a fairly precarious kind of situation at 4,400. Next couple of days, this level should hold otherwise we are probably setting ourselves for a much deeper cut.

Foreign Institutional Investors (FIIs) continue to be sellers:

That is a problem but that is inevitable given the kind of scare that is going around with monsoons - and FIIs do take note of these things - and also the fear of Indian underperformance relative to other markets has come to the fore because of this monsoon issue. So the FII sitting outside must be wondering should I go light on India because India is showing signs of underperforming other markets and therefore it maybe prudent just in the near-term to whittle down India's weightage a little bit. So what you are seeing is not a huge amount of shorting on the futures market. There is some shorting but that is 100-150 crore that is not meaningful. So this is not one of those huge 'go and hammer the Nifty futures' kind of a move that you have seen from the FIIs rather it is selling which is cash based and delivery based which is typically the sign of portfolio reorientation and whittling down some weightage.

Last couple of days we have seen about 1,500-1,600 crore of FII selling in the cash market and I suspect given the environment right now that may well continue. Also if you look at the F&O market, there too, we have seen writing in 4,500 calls too. So the markets conviction which yesterday looked like we are not going to go back to 4,700 in a hurry is increasingly looking like we are not even going to 4,500 in a hurry and we need to spend time below that. That is what the options market is suggesting.