Nervousness has crept in the markets with foreign institutional investors (FII) pulling away funds. Nirmal Jain of IIFL feels the markets may drift lower on FII concerns. According to him valuations will become attractive and FII money will return only if inflation eases and political situation stabilises.
“Markets at 5,400-5,500 levels will find new buyers because fundamentally the macro story remains attractive from a medium-term perspective. These buyers will be value seekers, who have missed out on India rally and are looking at India from medium-term to long-term perspective.”
Jain added that the sectors that will do well, where earnings will not be impacted much by interest or cost, input cost or raw material costs are – IT and pharmaceutical companies with large exposure to the domestic market as well as good export portfolio.
“The banking space which did very well last year, will find difficult times this year,” he cautioned.
FIIs have now turned nervous for two to three reasons. The inflation continues to be high, interest rates will continue to remain firm which means higher costs for corporate and tight money conditions which makes some corporates defer their capex plans. These are further aggravated by the present political scenario, which is not very clear, particularly in the wake of scams. There are apprehensions that banks will slowdown their credit and many project approvals also lag behind.
At this point in time the FIIs are worried while the hedge funds have start shorting the markets. Therefore, altogether we are seeing a huge correction in the markets. Unless the political scenario improves, inflation decreases, there is a good possibility that markets may drift lower.
The Nifty showed great resilience in the last half hour of trade after testing the 5700 level. Although, the close was not as bad as the last couple of days, the volatile session has not been convincing at all. Sporadic rallies of 50-70 points got sold into intraday. It was more a short covering bounce but a comeback day for a lot of the beaten down stocks.
Sajiv Dhawan of JV Capital Services feels that the 5800 level from where the Nifty has bounced back a few times in the past may not support the market ahead due to abysmal FII flows in the new year. "Unless FII flows resume, we might see further selling on any significant rally," Dhawan said.
He says a lot of negative news flow on midcap companies has shattered the confidence of a lot of traders in the short-term. "Most traders feels they have lost in a month or so what they had made in the last 10 months."
Technical analyst Anil Manghnani, Modern Shares & Stock Brokers is concerned with the way some stocks on the Nifty are breaking down on the charts. "Slowly even the stronger sectors are starting to give in. When that happens, it becomes difficult for the market itself to hold a particular level because the number of stocks that can get taken up drastically are being reduced and that is the concern going forward."
Manghnani expects a bounce to between 5900-6000 before another sell-off sets in at which point positions can be lowered down. "I think there will be a short covering rally trying to buy for this 100-200 point move."
Vivek Mavani, Vice President & Senior Portfolio Manager, Brics Securities sees the 5700 level being pierced in the next couple of days. "The momentum on the way down is going to effortlessly pierce 5700 on the Nifty." Mavani added if the FII selling doesn’t stop soon then the markets are in for far more severe volatility than seen in recent times.
He advices compulsive traders to cut their shorts. "At this point, it doesn't seem to be a level to go long."
Sushil Kedia, FRM, CAIA CMT, President, ATMA, there is a less than one-third probability that the Nifty can rebound all the way to 6,300. Kedia said there is also a one-third chance of the Nifty going no further below 5700, before hastening to add that the prospects of a meltdown to as low as 5,400 will, however, remain maintained. "If 5,400 is also broken, then I will abandon my call for the return of 6,500 coming by the end of February or early March," Kedia said.
Ambreesh Baliga of Karvy Stock Broking feels the 5700 levels is a significant level to watch out for. Baliga says if the market holds 5700 then a sideways correction is possible for a while, post which some consensus could emerge that a bottom has been formed. "But in case it breaks 5700 then I think the next support is closer to 5200 levels. So even as of now I would say one can buy at these levels but keep cash for that eventuality," advices Baliga.
He however is quite bullish on the markets for the second half of 2011. "We would suggest that with any sort of fall it is surely time to start buying."
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SOURCE: MONEYCONTROL
