US Markets Effect Collateral Damage, But Further Downside Appears Limited

The index, oversold already, tumbled 270 points within the week against the odds. The unexpected correction stemmed from the tumult that ensued in the U.S markets. The Dow Jones Industrial Average fell 756.03 points, or 3%, to 24,688.31; the S&P 500 slumped 3.9%, to 2658.69; and the Nasdaq Composite dropped 3.8%, to 7167.21.

While the broader outlook continues to be bearish to range-bound for the index, a technical bounce from current levels continues to be on the cards. We are already trading very close to the previous wave low which saw the NIFTY dipping below the 10,000 mark briefly in March this year.

The downward slant of the Bollinger band remains a concern, and signals weakness. Despite the PE ratio of the index dipping to a much healthier 24X now, the fact remains that corporate results have been a mixed bag thus far, and may not provide any significant impetus to the markets at this stage.

What this means it that an interim technical bounce notwithstanding, it would be overoptimistic to expect any significant bullish movement over the next few months, during which markets are expected to reman volatile and range bound at best.

Long term Mutual Fund investors who have been sitting on cash for want of an entry opportunity may well consider allocating a portion of their investments into large caps and multi cap funds at this point. For mid and small caps, a 6-12 month STP would be a more prudent strategy.

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