The week gone by was really scary.
USA and Europe came again in the grip of the new Covid-19 variant omicron and the cases are increasing every day. Many other nations like South Korea too are feeling its heat. Rests of all, including India, are shivering in the backdrop.
Global stock markets witnessed volatile movement and may repeat the same kind of movement this week. The impact, here, was huge FII selling. Coupled with weak global cues market sentiments turned negative. As the holiday season on the eve of Christmas and New Year is on the way, we don’t think the present situation would improve. The fear is, due to large gatherings expected on these occasions, the cases might go up. The emerging markets, living on the reflected glory and ugliness of developed markets, will get a big shock.
Last week, BSE Sensex declined 1,774.93 points to finish at 57,011.74, while the Nifty50 fell 526.1 points to close at 16,985.2 levels. But the biggest surprise came from the foreign institutional investors (FIIs). They have remained net sellers in this month till now, and have sold equities worth Rs 26,687 crore. Now let us talk about some hard facts: For the full month of November it was Rs 39,902 crore and in October it was Rs 25,572 crore. It means within the period of just two and half months FIIs sold equities worth Rs 92,161 crore. In the year till date in 2021 the figure comes to Rs 83,923 crore. It is no small amount. Sell-off of this nature has never been observed so far. However, in the meantime, domestic institutional investors (DIIs) bought equities vigorously and pumped in big numbers so the liquidity situation didn’t go out of hand.
Not to forget the primary market. As a deluge of IPOs are hitting the market and some IPOs blocking big sums of investors the scene has taken a big hit. IPOs like Paytm, Policy Bazaar, Cartrade etc. have given a jolt and retail investors are stuck, holding those stocks in loss. So it seems the days are numbered for the support the market was getting from domestic institutional investors as well as retail investors.
So if the selling is not stopped coming days may be very bad for the markets and investors. The probability factor is in negative.
& the Macros
On the macro-level, rising inflation is gradually prompting global central banks to think of interest rate hikes. The European Central Bank has further cut its bond purchases. The Bank of England also last week hiked interest rates for the first time since the onset of the pandemic. On the other side of the globe, the Fed has already announced its decision to double the pace of asset tapering by early 2022 rather than a mid-2022 paving way for three interest rate hikes. All these are only indicating that the markets next week will not be in green, the sentiments will most likely be negative and market participants too will carry a sad face.
Another Crucial Factor
The coming week will surely be crucial.
It is a standard practice to consider that whenever Put Call Ratio of Nifty goes below one, the market is in oversold zone. The USUAL & expected RESULT – the market will bounce and go up. The same, if is above 1.5, it is considered that the market is in overbought territory. The USUAL & expected RESULT – huge profit booking may happen and as such the market will fall.
However, the market has been hovering between 0.5 to 0.8 ranges since many days indicating logically, that the market is in oversold zone. The standard result should have been market going up. On the contrary it is falling due to desperate selling.
Another point to be noted here – compared to the way Nifty, Bank Nifty and some individual stocks have fallen the Midcap and Smallcap Index have not followed to the same percentage points. That means in that space the desperate selling is not happening at large scale. Suppose if in that space too it happens and DIIs and individual investors go in for a desperate selling what would be the situation? Even with less volume the fall in percentage terms would be more, and would require long time to recover.
We think as a smart investor you must let the market settle. Avoid any new buys but be invested in fundamentally strong companies. Don’t sell those investments in panic. Follow Stop Loss. We feel even while the structural drivers of the equity markets are intact over the medium to long term, in the near term equity markets could witness some degree of volatility.
On a lighter note, consider yourself having attended many marriages and birthday parties continuously for many days. Then what you decide? You decide you will have fast, fast for a day or two, take only water and skip those samosas and pakoras with your evening tea. Like ways since you had been riding a bull for many days and months the time has come to rest a while. No harm in that. Sometimes it is required for your capital protection to avoid the markets.
Also remember, in the few days when you see market falling 100-200 points don’t start believing 16000 is imminent or the vice versa. That would be dangerously wrong. Falling into a groove of BTST during that period may backfire as market mood swing nobody can measure. If still you can’t resist yourself then do it in limited quantity with strict self-imposed Stop Loss.
For those new investors who entered during the last two years this market is giving a lesson – a lesson to be learnt, followed and believe in the term, Kuchh Bhi Ho sakta Hai Market Mein!