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As we all know that the market has been witnessing a see-saw movement since last Monday with BSE Sensex falling by about 1,400 points on 21-01-08, with a further loss of about 875 points on 22-01-08. Obviously, with such a steep fall in two days, recovery was obvious, which came with a rise of 860 points on 23-01-08 which fell again on 24-01-08 by about 375 points. Big relief was witnessed on 25-01-08 with a rise of about 1,140 points on Sensex.
Why are we witnessing this see-saw in Sensex and what lies on the road ahead for the market in the next one week to one month ? Probably, this is the question in the minds of every market participants, including a long term investor.
Why a long term investor needs to get worried or panic, if he is convinced about the India Growth story which is likely to remain atleast till 2010, time and again reaffirmed by the Economists, Fundamental Analysts, India Inc. and even by our PM and FM. He has not invested in the market to earn his day to day gain or profit, but is there to create wealth, which a genuine investor has made or created over a period of time, and especially in the last four years.
The fall in the Indian market has triggered with the fall in US Markets, which led to nervousness in other international markets as well, like Europe and South East Asian countries, which get closely monitored by the Indian analysts, nowadays.
In this fall, weak hands left the market by liquidating their long positions, having created in F&O segments. But in the process, small and big broking houses also had to pay a big price, as now, some of them are unable to recover losses having incurred by their clients. Last week, more than 50% terminals of the brokers were disabled, including some of the broking companies, which went public in the last couple of years as also, some of which are planning to go public.
With rise in market on one day, traders and investors become bullish on the market and start taking a positive call and this was witnessed on Friday, 25th January 08. This proved short lived on 25th itself with US Market opening in negative. Whole of Saturday and Sunday people were expecting huge fall on Monday which rightly came in.
Now, let's look to the situation developed in the last one week or so. January F&O series witnessed a fall in open interest, in terms of number of shares and value, in the week ending 25th January, 08, from the levels at which the series started on 28th December 07. This is indeed a healthy sign, as the market has grossly gone underowned with weak hands, totally moving out of the market. The strong hands have entered into the market at the levels of 16K to 17K equivalent to Nifty at around 5K, whereby they have positive mark to market on intra-day basis.
High Net Worth Investors, Indian Corporates and even Retail Investors are now very much interested and have started buying the stocks with a view of about 6 months at the current levels. With such a situation, at the ground level, it is likely that painful leveraged position has not remained much in the market which is ultimately a cause for fall in the Sensex, abruptly.
However, sentiments turn negative with a fall in international market and wild rumours act as a fuel to the fire.
With open interests having reduced by close to Rs.35,000 crores and weak hands now out of the market, these are the reasons for the market to go for a new round of buying and in all probability would take a U turn by the end of January F&O series, slated to happen on Thursday 31st January.
F&O series starting on 1st February, which would expire on 28th February, is likely to remain quite positive and one should not be surprised to see it inching close to 20K on Sensex and close to 6K on Nifty. Rational thinking would also prevail in February, due to good expectations from the budget, further rate cut from FOMC, call on Q3 results and improved liquidity with the refunds coming in from Reliance Power IPO.
All these things should be able to change the sentiments, which are purely driving the markets now, keeping fundamentals on the backburner.
Axit Shah
Wealth Advisor ~ Allies Financial Services
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