Enough is Enough!

Fear, Panic, Pessimism, Exotic Derivatives turning Toxic, Economies darkened by Eclipse, Credit Crisis, Liquidity Squeeze, Sensex Sinking to Four-Digits, Closure of American Banks, Layoffs, Bail outs, Job Losses, Recession etc. The business and mainline media is full of such gloomy headlines these days.

Week that was

As expected by us there was a technical bounce back in market taking the Sensex up by 1000 plus points in the first two days of the market. The rise was due to the positive global sentiments and the confidence of stability returning to the financial system.

However, the last three days witnessed sharp fall in the market despite the cutting of CRR by RBI by full 100 bps (to 6.50%) that too with a retrospective effect and Sensex plunged below 10000 points after two years. The fall was mainly attributed to the exit of FIIs and weak sentiments in our market.

Sensex and Nifty declined by 553 points (-5.25%) and 206 points (-6.27%) to close at 9,975 and 3,074 respectively.

There was a heavy selling in the Reliance Pack and capital goods sector.

FIIs continued to sell. Rupee was trading below 50 mark thanks to the measures initiated by the government to ease the Forex inflows.

The annual inflation, calculated on a point-to-point basis, fell to 11.44% in the week ended Oct. 4 as against 11.80% in the previous week.

What’s ahead?

Sensex at four-digit level is highly depressing. If the downtrend continues, panic may be spreading across the Indian investors’ minds also and redemption pressure will be huge on mutual funds.

However, with the governments and monetary authorities across the world having initiated many measures to restore the balance in the financial system, there may be a brief pause in the falling trend. Also, fall in inflation rates, fall in oil prices and easing of interest rates are positive factors for Indian macro economy.

There is a technical support for the Sensex between 9700-9800 points breaking which 8800-8900 levels will form a stronger support.

In case of positive news flows and pause of FII outflows, we may witness a short-term bounce back to 11500-11800 levels.

However, the volatility in the market is going to remain

RBI is expected to cut Repo Rate in its mid term monetary policy announcement (24.10.2008).

Investors are suggested to look into relatively safer sectors like Banking, Pharma and FMCG. Investment in ETFs (of large cap indices) is also a good option.

Traders may initiate long position at falls however with strict stop loss limits.

Rupee is expected to continue to trade below well below 50 mark and the general demand for US Dollar is expected to slow down.