Diwali Discount Sale

During last week, Stock Market was very much generous to its customers unheard in any other market to offer many stocks at huge discount (80-90%) to their previous year’s prices. For instance, one can buy entire pack of real estate stocks (one each) within the price that was paid for one single real estate stock last year i.e. DLF Ltd. I was telling my friend that he could buy many big names at the cost of a biscuit packet for his child.

What went wrong?

There was a short break in the downtrend for the first two days taking the Sensex to the intra-week high level of around 10,800 points after which the market fell like there is no bottom. Persistent selling by FIIs and global melt down made the market to have an unprecedented fall.

Repo Rate cut, fall in inflation numbers and melt down of commodity and Oil prices did not enthuse the market. A tragedian anti-climax waited for the last day of the week wherein Sensex fell by more than 1000 points thus closing just below its crucial support line of 8800 points.

Index stocks like Unitech (cash crunch), Suzlon (blade breakage) and ICICI Bank (financial crisis) fell prey to romours and faced huge correction in their prices. Reliance pack also continued its downfall.

Real Estate stocks were the worst hit for the week followed by metal stocks.

Rupee went above 50 levels for the first time in its history. Strengthening of US Dollar across the globe and stock market crash were the main reasons for such fall.

What’s ahead?

Currently, Panic rules the market. There is an insufficient liquidity support in our market, which makes it difficult to absorb the huge FII outflows (outflows have been to the extent of Rs.50,000 crores during the calendar year alone).

Our market will be keenly looking for global cues for the direction hereafter. In particular, there is a series of economic data to be released in US in the coming week which will be closely watched our markets also.

There is an oversold position in the F&O segment and short covering may be expected this week during the F&O expiry will happen.

Next support for Sensex comes around 8600 followed by 8200 points. There is a possibility of a sharp recovery (as it happened in the first two days of the previous week) taking the index to around 9800 levels. Breaking 9800 levels will be key to further upside.

Rupee may continue its downfall and the next support comes around 51.00-51.50 levels. Rupee will be closely tracking global movement of US Dollar and stock markets.

Traders are suggested to be cautious in view of high volatility and those with high risk appetite may trade in options taking contra view i.e. when the market is extremely negative buy Nifty Call Options and vice versa.

Investors with an investment horizon of over 5 years may start invest in ETF (Sensex and Nifty) schemes in small quantities.

Wish you Very Happy. May this light festival bring new light to the stock market.