Street freaks out, unloads as rumours fly

The markets tanked in the later part of the trading session on Friday with the Nifty closing below its crucial support of 5400 on concerns over political uncertainty and rumour-mongering clobbered shares.

The National Stock Exchange bellwether lost 131 points, or 2.37%, to close at 5395.75, while the Sensex shed 441.16 points to close at 18008.15 as investors shorted index futures fearing negative developments over the weekend.

“Concerns on the domestic front are driving investors to panic. Even as inflation continues to be a concern, people fear some revelations might cause more damage on the political front if certain media reports turn out to be true,” V K Sharma, head of private broking and wealth management at HDFC Securities, said.

Even though the cash market did not witness any selling as per provisional exchange data, the Nifty futures saw selling of almost Rs 407 crore in index futures while the index options witnessed buying of Rs 940.87 crore. As a result, the Nifty Feb futures, which were trading at a 12.20 point premium over the spot index on Thursday, closed with a discount of 8.75 points at 5387.

“Investors are nervous at the moment, with lots of rumours floating around. FIIs, which had covered their shorts in Nifty futures on Wednesday, have again started selling index futures and buying puts on the options front. The cash markets haven’t seen selling and it may be hedge funds, HNIs or speculative investors who would have taken short positions,” said Karun Mutha, head of derivatives at HSBC Invest Securities.

All the sectoral indices closed in the red with Realty (down 3.37%), FMCG (down 3.08%) and Technology & Telecom (down 2.28%) losing the most.
Among the companies, the major losers were those about which there has been negative news of late, with DB Realty, Sun TV Network and Unitech falling 10.04%, 7.26% and 7.11%, respectively.

“Today’s fall seems to be more due to political uncertainty rather than concerns on inflation. However, there has been no sharp spurt in IVs (implied volatilities) which suggests there is not too much pessimism either,” said Siddarth Bhamre, head ofderivatives at Angel Broking.

The India VIX, a measure of near term volatility expected by market participants, rose 7.58% to 24.41.

Going ahead, market participants advise investors to be cautious even though the markets seem to have some support at current levels.

The markets are closing in on 5380 levels, which is a 61.8% retracement of the rally from 4800 to 6300, and we may see support at these levels. If there is no bad news on the global front over the weekend, we may see markets bouncing back on Monday,” said Mutha.

“One needs to be cautious. Puts as a hedging tool are very much relevant at this point of time,” said Sharma.

Experts also suggest that investors should keep off from midcap and smaller stocks, which are facing the heat now.

“For us, 5400 levels seem to offer strong support and one should square off short positions. Though this doesn’t mean we may see a strong pull back, one should utilise these levels to create a large-cap portfolio which would see liquidity if things improve,” said Bhamre.

Analysts suggest the gross domestic product numbers due on Monday will be closely watched for signs of slowing growth.