Feared ETF selling has begun, Indian market vulnerable

The market viscously turned on Wednesday afternoon and disappointed many. Exchange traded funds (ETF) were driving the market for the last six months, and money flowing out of ETFs led to this downfall, believes Udayan Mukherjee, managing editor, CNBC-TV18.

"The anecdotal evidence is quite strong and the way some large cap stocks have started coming off, the feared ETF selling is now beginning to materialise," he added.  Below is the verbatim transcript of Udayan Mukherjee's comments Pullback rallies can end as abruptly as they begin - this was a risk which a long trader was always going to carry when playing counter trend. For a while one wants to play along with the upmove, but doesn’t want to overstay his welcome in these kind of pullback attempts. The way Nifty cracked 5700 on the way down, it looked quite ominous. I don’t know where the selling has come in from because global markets have not tanked today. Europe is not in any great distress. The answer probably lies with the data that shows the exchange traded funds (ETF) money, which was driving this market for the last six months, started slowly checking out. We have seen enough signs of that over the last one week. The anecdotal evidence is quite strong and the way some of these large cap names have started coming off, the feared ETF selling is now beginning to materialise. For the last six months the nature of these ETF flows has been discussed. If India’s underperformance continued for a while then that money may slowly start to ease out, I think we are beginning to see the first signs of that, which is very ominous. It has not reached big proportions yet, but today’s selling is probably indicating that. That selling is accelerating, leading to further under performance for Indian stocks. So, in today’s trade the reversal is surprising. But for people who track these pullbacks, it should not have come as too much of a surprise because that is the way some of these pullback rallies usually end.