Rallied Too Much Too Fast: Stock Market Undertone To Remain Weak
The current market rally in India in the past few months has been reminiscent of the 2008 bull run when the Sensex and Nifty were making new lifetime highs every week on the back of relentless buying from retail investors. Then too, a sharp fall in the markets in January proved to be the straw that broke the camel's back as the debacle of the Reliance Power IPO combined with other global factors led to a reversal of the bullish sentiments. This time again as the Sensex and Nifty witnessed a near 20 percent rally in just the past three months, a combination of domestic and global factors have returned to hunt them. On Wednesday, the over 2 percent decline in Sensex and Nifty turned out to be their biggest fall in a single trading session in nearly a year. The banking index was down over 4 percent. While the key trigger for this was the disappointing third-quarter results of India's largest private sector bank HDFC, analysts say there is more to it.
Foreign portfolio investors (FPIs) sold shares worth a whopping Rs 10,578 crore on Wednesday in the cash segment. The domestic institutional investors were net buyers of stocks worth Rs 4006 crore. The share price fell by 8.46 percent
"Nobody is looking at the China markets. The Hang Seng index was down nearly 4 percent on Wednesday. Shanghai markets fell 2 percent and China A 50 and other indices declined by over 2 percent. In Europe too the markets fell over 2 percent and the US stock futures were down sharply as well. It clearly indicates that the reasons for the fall in India's markets were not domestic alone," said Rohit Srivastava, founder Strike Money Analytics and Indiacharts.
Srivastava is of the view that in the short run India's markets are hugely overbought going by the technicals since the Relative Strength Index, a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions toughted 86, any reading above 70 is considered very high. "Nifty can fall another 1000 points from the current levels and even re-test 18800 levels, the point from which the recent rally started. It all could play out in the next three months," Srivastava said.
The markets were falling in China since government data showed that the country's housing slump was worsening by the day. Also, China's measure of economy-wide prices marked its longest slide since 1999, making it the deepest and longest deflation in China since the 1998 Asian financial crisis. In the US and Europe the markets were falling on the comments from Federal Reserve Governor Christopher Waller, who said a rate cut this year was possible if inflation edges lower toward the central bank’s target and when the time was right only then rates should be lowered “methodically and carefully. These comments were seen as hawkish and against the popular perception that the US would start cutting interest rates from the March quarter.
There is always a silver lining amidst the dark clouds. According to Kishor Ostwal, MD, CNI research, there is no bear market in the near term.
"You cannot compare Chinese markets with India as of now. China is facing de-growth while India is the fastest growing in the world and the economy is not going to slow down for at least 2-3 years. The most positive factor for Indian markets in the Wednesday crash is that FPI selling of Rs 1,0000 crore got absorbed without any panic with just 2 percent fall in Nifty. Even HDFC did not hit lower circuits as there were buyers for the stock at lower levels. This shows the depth India's market enjoys today. After the January month derivative rollovers, market sentiments will again improve," Ostwal said.
In Ostwal's view, the global stock markets will remain buoyant unless there is a major credit event or up to the time when the US Fed actually starts cutting rates.
