Making sense of market mayhem

By Anuj Singhal

So finally the market is capitulating. But what really is happening out there? Who is selling and what should the market be weary of?
What is worrying me the most is that FIIs have actually invested USD 12.7 billion in cash markets this year. And the Nifty is down eight percent despite that. In fact the Dollar Nifty is down 16 percent year to date. Where exactly has this money gone and what happens if even 10 percent of this money has to go out?  Also read: Next 18 months tough for global economy: Kaushik Basu
Well let’s look at the Nifty internals. You would be amazed that only eight Nifty stocks are in the green this year, but those who have actually been money spinners. For example, at number eight is ITC with nine percent gains, HUL is up 12 percent, Dr Reddy's 17 percent, Lupin 28 percent, Infosys 30 percent, Sun Pharma and TCS are up 40 percent and the biggest of them, HCL Tech is up over 50 percent. 
On the other end of spectrum, the 42 Nifty stocks that have fallen – 33 of them have fallen more than 10 percent - within that 15 have actually fallen over 30 percent, seven over 40 percent, 2 over 50 percent and a poor soul by the name of JP Associates nearly 70 percent. And I am not going into the Nifty Junior and midcaps because you know what’s coming there.
So with some of the erstwhile FII favourites likes SBI, BoB, L&T, ICICI Bank decimated, the key concern should now be what happens to the likes of IT stocks and the pharma stocks. And if that has to happen, will it finally lead to an FII exodus. Keep in mind, even if this market was flat, an FII would have seen eight percent erosion purely because of currency. 
The other angle that’s scaring me is the absolute low levels of cash market volumes and hence the depth of the market. Ninety-six percent turnover is being generated in the derivative market with lion's shares coming out of Index options, which has become a gambler’s den. Even if someone has to sell USD 10 million of stocks, that would lead to big price damage. Factor this, on Friday, FIIs sold less than USD 100 million in cash markets, DIIs more than bought that and still the Sensex ended with near 800-point collapse. 
And while the consensus is that this market is only headed down, that has been the consensus for some time now. And when a consensus trade is so right, sometimes the bravado of approaching the market with contra views can be painful, unless of course you have deep pockets and a really long term view. Somehow the internals of the market and most importantly the ticker is telling us that there is more to come. 
Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation. All views expressed in this blog are his personal views and his channel does not subscribe to the same. 
You can track his views on www.themarketinternals.blogspot.com