U-turn in market trend? Keep calm and buy, say experts

Manu KaushikCNBC-TV18

Sensex witnessed its biggest single day fall in absolute terms since July 6, 2009 amidst a broad based sell-off in markets in general.

The BSE benchmark index slid 3 percent or 857 points to 26,987 levels and the Nifty cracked 251 points to close at 8172 on Tuesday as risk off sentiment engulfed global markets owing to political uncertainty in Greece and global crude oil prices slipping to multi-year lows.

Amar Ambani, Head of Research, IIFL said, “The month of Jan has historically given many jolts and this year is no exception. January is also likely to see many Offer for Sales (OFS) issues, which could further suck out liquidity from the market. The crash in oil prices, the tumble in Euro on account of the Greek situation and general apprehensions regarding growth led to sell-off globally. A fall in crude should be otherwise good for India the stock market is in no mood to cheer the same. The results will be the next trigger for individual stocks but market direction will hinge largely on global market movement.”

Nymex crude futures contract was last seen trading at USD 48 a barrel, while Brent crude tumbled towards USD 52.01 after data showed Russian oil output at post-Soviet era highs and Iraqi oil exports at near 35-year peaks. Experts point to supply glut amidst weak global demand as the primary cause for this fall.

Offshore and exploration stocks succumbed to the broad sell-off with a 4-5 percent downtick seen in Aban Offshore, Dolphin Offshore and HOEC.

Both domestic and foreign investors are of the view that the jolt is temporary and investors should use the opportunity to buy at lower prices as fundamentals still hold promise for India.

UR Bhatt of Dalton Capital sees pressure on crude prices hurting the sentiment internationally, India’s macro fundamentals appear sound. “I don’t think this (correction) will last long,” he says, unless something went dramatically wrong in the Eurozone like Greece going out of the Euro.

Hans Goetti, CIO at Banque Internationale Luxembourg echoes the sentiment. He says it is part of consolidation for a market that has had a good run. But improving fundamentals make it an attractive destination for foreign investors.

A number of Nifty heavyweights are now trading perilously close to their 200 day moving averages now while some have already breached those. A breach of 200-day moving average means that stocks' major trend has officially turned negative.

The sell-off got exacerbated as Nifty breached the crucial 8150 level during the day which triggered off margin calls. Margin calls get triggered when the value of securities (bought on borrowed money) get depressed below a certain point, forcing investors to deposit more money with the broker or sell some of the securities to replenish the account to a minimum maintenance margin.  

Current F&O data suggests market is betting on Nifty to be capped at 8,300 levels in the month of January with massive volatility on the cards. Fluction in option prices captured by the India VIX index, which jumped 23 percent on Tuesday, suggests a massive bump in volatility expected in the near-term.

Jai Bala of Cashthechaos.com says the trend is still up and investors need to be cautious during this phase of correction and need to tread cautiously. He advises investors not to get perturbed by the selling that is happening at the moment.

"It looks like it is going to go straight below 7950 and then find a bottom somewhere close to 7700 or just about that place," he added.