Where Have The Bulls Gone?

Global markets reeled from a bout of severe selling from foreign investors as mayhem ruled the markets and stocks lost considerable value. A sharp sell-off has continued in other risk assets too, including currencies and debt, as investors are worried about the tailwind effects of a fall in oil prices on global growth.

At one point, the Sensex lost over 600 points on frenzied selling. Only a day-end buying saved the market from showing huge losses. Despite that, the Sensex lost 1.71 percent or 417 points to close at 24,062.

Brent crude breached the $29-mark due to supply-side concerns. The Indian rupee, which has been holding up well till now, also tumbled beyond the critical Rs 68-mark against the dollar. These levels were not seen last till August 28, 2013, when the rupee hit an all-time low of Rs 68.8.

Bull market prognostications are now slowly fading as the Sensex is just shy of being officially declared a bear market. From its high of 30,025.74 on March 4, 2015, the Sensex has slipped nearly 20 percent to the current lows of 24062 points. During the day, the bellwether index lost over 600 points, but thankfully closed higher inches away from bear territory.

The sell-off is more severe in the mid-cap space where margin calls on brokers seems to have triggered selling in mid-caps stocks. The BSE Mid-cap index has lost more than 9 percent the last five trading sessions as compared to 3 percent in the Sensex. Small investors who have been active in the mid-cap space and recent entrants into the market are seeing losses mount in their portfolios.

Just last week, the mid-cap indices were trading at its peak valuations never seen since the heady days of 2008 at over 28 times PE. Experts say these were signs of froth building in the mid-cap space due to excessive speculation.

PSU banking stocks were also badly hit. SBI, the frontline PSU bank, has lost nearly 50 percent from its peak and has dipped to Rs 171. Ditto for all other banking stocks as the Nifty PSU Bank index is trading at its 52-week low of 2193 levels. All in all, it's been a forgetful market for most investors.

Now, the on-going results season is being seen as critical for signs of any recovery in the domestic economy. So far results have been lacklustre with major companies such as TCS and HUL reporting weaker numbers. Most large-caps are not quite out of the woods yet when it comes to domestic performance. Companies in the IT, infrastructure and consumer spaces have been reporting slower growth.

In this unfolding result season, only those companies that show they can manage to grow their businesses despite a flattish economic growth will be rewarded. Any slack in profits and growth could see stocks being ruthlessly hammered black and blue.

What next? The coming weeks are critical. Investors are watching for signs of stability across the global markets. Chances are, there could be relief rally in the next few days as the Sensex stock prices are looking extremely oversold and experts are betting on a small recovery to around levels of 24,500 levels in the next two, three days and towards expiry of the current F&O series.

But caution is in the air. Experts are also not ruling out further selling by foreign investors. If the market closes below these levels in the coming weeks, then the Indian markets will be officially in a bear market.

Fact is, globally, investors are looking for signs for stability or a recovery in oil prices. Domestically, investors are looking for signs of revival in corporate profits. Both are critical for the well-being of the Indian markets. At the moment, on both fronts, the horizon is looking cloudy, prompting the bulls into hiding.