Bear-grip bodes more discomfort

Unless the Fed springs a pleasant surprise, the ride may be further downhill

MUMBAI: The bear reign is official now. After two months of selling by foreign investors lopped off over 5,000 points from the Sensex, marketmen are finally acknowledging as much.

The BSE benchmark closed last week below the 16,000 mark, for the first time in six months. But, more jitters may be in store when the markets open on Monday.
Last week, record home foreclosures and poor jobs data in the US dragged the Dow Jones down to its worst close in a year. Over the week, the Dow lost 3%, while the S&P 500 retreated 2.8%.

This steady flow of bad news from the US has left the market edgy.

Says Paras Bothra, research head at Ashika Stock Broking: “The nerves are completely unsettled and paper assets seem to be out of vogue. Global financial markets are quite uncertain and complex at the moment and one should refrain from trading in such a market.”

The Indian market’s performance has been the most disappointing among emerging markets during the last few weeks.

A DNA Money analysis of year-to-date returns of global indices shows that the Sensex is the worst performer. The Indian benchmark has lost 21% so far this year, followed by Hong Kong and China . The US, in comparison, has lost around 10%.
Says Anil Advani, head of reaearch, SBI Capital Markets: “We have been reacting in the worst possible manner to all the bad news in the global markets.”

“Our markets have been one of the most disappointing in the emerging markets’ pack. If you recollect, we overshot the other markets on our way upwards. The same
excesses are being repeated on the way down,” he said.

Deepak Mohoni, MD, trendwatchindia.com feels there is nothing new about our obsession with the US. “We have always been dictated by US data. It’s a continuing thing. Monday could be bad, too,” he said, while conceding that Monday’s fall may not be substantial as much pain was felt on Friday itself. The Sensex shed 900 points before recovering a third of that loss.

There are also expectations that some surprise move from Bernanke before the March 18 meeting of the Federal Open Market Committee (FOMC) could lead market recovery. After all, the last few market bounce-backs were induced by some aggressive moves by the Fed chairman. Days before the last FOMC meet, in January, the Fed had cut interest rates by a whopping 75 basis points.

“He will need to react much more strongly this time. But Bernanke is known for his surprises,” says Mohoni.

With banks, which had been a safe haven all along the crash, cracking under the twin blow of farm loan waiver and mark-to-market losses of overseas arms, most heavyweights have declined 40-50% from their peaks.

“A few scrips like ONGC, SAIL and NTPC are still holding fort. These will be the targets for shorters on Monday. Wherever they see value, they are hammering it,” said a derivatives trader with a local brokerage.

If that happens, fundamentally, the Sensex may be nearing a level where valuations become attractive. At the Sensex EPS of Rs1,029 for FY09, the benchmark is still quoting at a price-earnings multiple of over 15.

Going by marketmen, many investors would be comfortable at a PE of 14, which would be around 14,500. At that level, buying could start coming again, they say.
However, that may not happen in a hurry for want of liquidity. Traditionally, March is a month of low liquidity in the markets due to the tax outgo.

Says Sandeep Wagle, chief technical analyst, Angel Broking: “It is a bear market, at least in the short and medium term.”

Wagle sees the recent low of 15,300 as a support. “We are already close to this support and there are no signs of a bounce-back. Even if there is one, it should be used as a selling opportunity as there is strong resistance at 17,000-17,200 levels,” he adds.

“Though we remain bullish on the long-term story, at least for the next two months, I’m not expecting the index to run up sharply,” says Wagle.

Amar Ambani, head of research, India Infoline agrees: “I think the market is going to remain like this. Sensex would trade in the range of 15,000-18,000 in the next 5-6 months.”

Even the April results are not going make any big difference, feels Ambani. On the other hand, if things go wrong in the results, that will be a double whammy.

“Even the domestic investors, who are staying put, will start selling if the numbers disappoint. We are in a global bear market. It’s not time to talk of a recovery, since all markets are on the way down,” sums up Mohoni. “Only if and when we see some markets going up, should we talk about recovery.”

n_subramanian@dnaindia.net