A: Yes, yesterday too was a case in point. Though I don’t know where the last hour selling came in from suddenly. But the mornings attempt recoveries and evenings give everything away. So its really become a difficult market. One thing one can say about the market is that yesterday’s fall had a slightly climactic element to it and it certainly looked like it was getting oversold. The way many stocks were falling 8-10-15%—so when you fall like that in a single session, you get a sense that for the near-term there is some kind of crescendo which is building up and that often coincides with near-term kind of bottom from which you get a bounce. But is the pain over for good even if we do bounce this morning?—It will take a brave man to say that. The screen has not been looking good for the last few days and despite the pop that you can get on the way back; this morning you keep your fingers crossed.

Q: For the global situation also its flat, it’s tough to take lot away from it?

A: Yes, one doesn’t know what is going on because there have been some fundamental question marks which were raised over the last few days and they include more bank bailouts and that certainly make the market a bit unnerved—any bad news from the global financial sector because that is where it all started. We are getting close to loose the monetary cycle globally as well. But there could be some technical issues which are cropping up because the fall has been quite ferocious. We don’t understand these things very well, we only figure out what people are saying. A couple of years back we were talking about the yen carry trade and as Christopher Woods (CLSA)  yesterday was talking about dollar carry trade, you don’t know whether this the kind of vicious falls that you are seeing on the markets have anything to do with signs of unwinding of dollar carry trade. These things are not very easy to comprehend. Keep an eye on the dollar that is probably the most important part of the story again.

Q: Yesterday we just got pushed against the wall; we were close to 4,500 at one point?
A: It looked like a climactic kind of a sell off. So hopefully the bounce back that we see this morning will not get sold into in that vicious manner as we have seen for the last few days because yesterday’s fall is typically what you see when you are getting into that panic kind of stage, typically from where the market gives you a little bit of an intermediate bounce.

That is a million dollar question as we go into trade that nobody is talking about upsides. We know that upsides are capped and it will be difficult soon to back to the 5,200 levels because there are few things in the environment that might be changing; we are getting close to interest rate hikes, earnings have not been great and there have been many earnings surprises on the way down, and liquidity has tightened up in the global environment whether its because of unwinding of dollar carry trade or not but it is getting a little difficult there.

When you put all this together—the perfect kind of situation which was leading the Nifty beyond 5,200 probably has taken a little bit of reversal. Now that we have fallen 600 points from the top the question one has to ask oneself is—what is the intermediate bottom and where does the market find some kind of intermediate floor? And from there what kind of trading range the Nifty can try and establish because at some point, this kind of one way fall will stop. Even if it’s temporary it has to stop and it will try and form some kind of trading range.

Earlier the view in the market was that that range is probably 4,600 to 5,000. Now, after the vicious fall of last few days maybe people will move their ranges a little lower than that 400 point range because 5,000 right now looks a little tough on the way back up.

The other important point is that India has fallen 10% in the last couple of weeks and if you look at the S&P, it’s from 1,100 come to 1,045 which is 5%. China has not fallen at all, its holding 3,100. So suddenly, India is falling more than other markets just in the last 7-10 days which makes one nervous on whether there are some internal factors at work out here.

Q: What about high beta, for the 12 days that you mentioned that has really got punished. If you are playing for a bounce do you play beta?

A: Beta will bounce but it’s a risky trade and that is the problem. I think if you are playing in the near-term stocks, if the index bounces back a couple of  percentage points, gets back to that 4,650 kind of zone and if that happens then will some of the beaten down beta stocks give you that 5-6% kind of pop. So if you are a brave trader playing for a contrarian bounce then you would want to be there.

But the bigger question one has to ask is—leave the trading aside because it is not easy to catch a falling knife as traders have found out over the last few days. I think the first contrarian buy trades would come around 4,800, then 4,700 and every one of those long trades have been wrong and people have got stopped out. So there is risk in that beta trade which will play to an extent this morning.

But if you are an investor, you now have a situation where you are sitting back and saying that many of these stocks which are not bad quality stocks have suddenly fallen not 5-10% but 35-40% in the last 10-15 days for example Punj Lloyd is down 37% from its peak, Jaiprakash Associates is down 30%. Some of the public sector banks like Dena Bank and Bank of India have fallen 30-40%. In mid-cap tech, Aptech and NIIT have fallen 35-40%. Even in real estate DLF and Unitech have fallen 30-40%. So for an investor as well, you can now look back and say are there opportunities in some of these beaten down stocks which have lost more than a third of their market cap. The answer in many cases may well be no and that they will probably fall more but it makes interesting viewing for many of the high quality beta stocks, including the metal space which have really sold off sharply.

Trading is a difficult game in high beta. So you probably will be lucky with a 5-6% bounce but there you need to be a brave heart.