There was no respite for the market as the week started off on a dismal note. Another bloodbath awaited the markets placing the Nifty in unstable territory. The frontline indices ended at the low point of the day with deep cuts of 2.4%. The Nifty slipped below the 5800 mark to end 141 points lower at 5,762, while the Sensex shed close to 500 points to close at 19,224.
Interest rate sensitives led the fall again. Private banks and two-wheeler stocks were the worst hit. Most midcap stocks also got hammered out of shape.
Speaking on today’s trade, Technical Analyst Mitesh Thacker is surprised at the pullback that the markets saw today. With the markets being in oversold territory, Thacker said he had expected a late bounceback in the markets, which never came. "This is a one-way fall and so now we are very close to the 5750 mark on the Nifty, which was the closing low in the November fall. We are now closer to the 5750-5730 support."
Thacker said although he doesn’t see a sharper cut to 5500-5600 levels coming this week, but the technical charts suggest to him that a break below 5730 would see a test of 5600-5610. “The volatility indicators have shot up. This means any kind of movement on either direction would be very fast and difficult to catch,” he said.
With trading experts talking of 6000-6050 as being the boundary of the Nifty's pullback, Thacker’s gut feel however says that it would be very difficult for the Nifty, in this technical setup, to get past 5950. He said, 5894 is the level to watch out for in the event of a bounceback for the Nifty.
With just three days to go for major corporate earnings to start trickling in, the markets clearly look jittery. Another event in the form of the Index of Industrial Production is due on January 12, a day before Infosys kicks off Q3 earnings. Speaking on his expectations from the IIP numbers, Jitendra Sriram, Head Equities, HSBC Asset Management Company said, "If you look at the trend of IIP growth over the last couple of months it clearly shows some kind of a softening pattern. People are probably trying to play this event by reacting ahead of that event itself. So there is some expectation in the market that this number could be a soft one compared to what you have seen earlier
Sriram added that there are certain concerns surrounding India that people are wary about. He however hastens to add that a small bounceback in the markets could be seen in the short-term. "I expect some stability to come in. The market looking for direction from hereon is probably the way forward,” Sriram opined.
S Naren, CIO -Equities, ICICI Prudential AMC is worried that although a correction was always on the cards, but the extent of correction in the Indian markets against its global peers over the last three months is disturbing. Another disconcerting aspect, according to him, is that the current correction is not backed by global factors. He said the 5000-5500 level on the Nifty will act as a support area.
According to Naren, the real issues are not on corporate earnings but on inflation which was expected to come off seasonally. Naren said, corporate earnings are not likely to disappoint significantly, and will bring confidence back into the markets.
On FII flows, Naren said strategists from foreign brokerages expect a slowdown in flows in the first half of 2011. A positive outlook for the US market over the next six months is seen as a major contributor to the potential lack of flows. India was a significant gainer when the US markets was undergoing severe strain in the early part of last year which may result in flows getting reversed. "In December many of the strategists from the foreign brokerages and from prominent Indian brokerages, did give us a call that in the first half of the year the domestic inflows into Indian markets from the FIIs would be muted because of the good outlook for the US market and the intention to invest in emerging markets, which will benefit from a higher crude price. I think this is a sense that people did give us in December and that has played out.”
The main headwinds to corporate earnings this time have been commodity prices. An upside in earnings expectations for metals and energy companies though would help Sensex companies report higher earnings, but overall from an economic point of view, Naren sees it as a big negative. “I would say that it is futile to look at Sensex EPS without looking at what components give it the profit. If most of the increase in profit is coming from commodity companies, we don’t consider it to be positive. However, if commodity prices come down and due to that if the Sensex EPS get affected, we are fine by it."
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