Perfect storm’ may hit D-Street in 6 weeks, can sink stocks.

An over 4,600-point fall in BSE Sensex in just 25 sessions may be feeling like disaster! 

 

But wait, the worst is yet to come. At least one analyst is predicting a ‘perfect storm’ on Dalal Street in less than six weeks, and citing solid reasons too! 

The Indian equity market has become ultra-sensitive to weakening macros and negative news flows such as oil price rise, rupee crash and some corporate developments. 

But a few foreseen events could unfold in the day  ahead, which may go against market wishes and trigger a massive correction for domestic stocks: US sanctions in Iran is one, US midterm polls is another  and outcome of India’s own state elections could be the third. 

More pain in the offing 

We believe the Nifty 50 is headed for the 9,900 level.This translates into a further 400 points slide in Nifty and 1,200 points fall in the Sensex from current their levels.

The biggest worry could be Iran sanctions that will come into effect on November 4. India sources 10-12 per cent of its crude requirement from Iran. 

Analysts says the stock market is still under-estimating the possible disruption to crude output, especially in the light of the fact that Saudi Arabia and Russia – two major producers – have ignored recent US calls to increase crude production. A major disruption may cause crude prices to see a major spike .

Testing time for investors 

Foreign equity outflow from India has already topped Rs 17,664 crore so far this year, which is the worst since the Rs 52,987 crore FII outflow recorded in 2008. Foreign portfolio investors (FPIs) have sold equities worth Rs 1,500-1,600 crore in last three consecutive sessions. Should concerns over emerging markets deepen, the FII selling may intensify. 

Foreign investors own a whopping $408 billion worth of holdings in BSE200 stocks. 

Markets move on liquidity. Mutual fund schemes are sitting on losses this year, but they have somehow managed to bring in retail money. Will retail investors to sit tight despite negative returns is something that remains to be seen. They have not faced this dilemma for long .

US mid-terms elections & trade rhetorics 

How the US deals with friends and foes post its mid-term elections and how the outcome influences key decision such as trade war and Iran sanctions remains to be seen. US holds mid-term polls in November. 

One must see whether the rhetoric on trade war starts to recede post the US mid-term elections.

India has deferred its decision on retaliatory tariff in response to the recent US duty hikes till till November 18. Delhi would want clarity to emerge on the US response on Iran sanctions, analysts said. 

In 2013, India had received a partial waiver of sanctions on that country. 

We expect sanctions to adversely impact international crude oil prices, and India will be impacted more due to higher domestic oil prices, inflation, fiscal, bond yields and rupee weakness.

State elections 

Forthcoming state elections could become another pain point ; three major states – Rajasthan, Madhya Pradesh and Telangana – go for assembly elections this quarter, along with two smaller states – Chhattisgarh and Mizoram. 

The results of these state elections could set the tone for the general elections to be held in May, 2019, it said. 

In a bear case scenario, Bhatia said, if even the outcome of state elections  is unfavourable, it will be a perfect storm. 

We can fall significantly more from here on because our premium over some of the other emerging markets will have to shrink significantly.

Meanwhile, the government’s move to cut fuel prices has not been taken positively by the market, as it raised fears of more populist measures as the elections draw near. 

Shares of OMCs plunged up to 25 per cent on Friday, in addition to a similar fall seen in the previous session. 

Analysts noted that during the last two state elections – Gujarat (November 2017) and Karnataka (June 2018) – marketing margins for both petrol and diesel had turned negative in the months leading up to the elections. 

MORE WILL UPDATE SOON!!

Carnage on D-Street! Top 10 mistakes you must avoid in a falling market

Experts feel that investors should avoid timing the market as it is very tough to predict a bottom or top. Stay with fundamentally sound companies which have always braved the fall.

   

The S&P BSE Sensex on October 5 plunged nearly 800 points while the Nifty50 dropped by 282 points to record its largest one-day fall since August 2015. For the week, the Sensex lost 5 percent and the Nifty 5.6 percent.

Investors lost nearly Rs 4 lakh crore in terms of market capitalisation on BSE, taking the total weekly loss to over Rs 8 lakh crore.

When carnage of this magnitude takes place, it is not the money investors lose, it is the confidence that's shaken. A similar incident happened in 2008 when almost 30-40 percent of index value was wiped out in a matter of days.

Retail investors took nearly 5-6 years to re-enter equity markets via mutual fund route and we are already seeing signs of redemption starting from mutual funds which will further exert pressure on markets.

According to data from CAMS, a mutual fund registrar which covers 85 percent of the industry flows, cash plans or liquid funds saw outflows worth a whopping Rs 69,694 crore.

What should investors do? Well, experts feel that investors should avoid timing the market as it is very tough to predict a bottom or top. Stay with fundamentally sound companies which have always braved the fall.

There are multiple parameters which investors can use to select the stock, but in a falling market examining a fundamental of the company is key tools or first layer of the screener. “This fundamental can be linked to revenue trend, growth in profit margin, the attractiveness of return-on-equity and finally valuation.

Given a gravity of fall in the recent period, it is likely to propel investors to take ill-advised moves which can hurt the overall financial plan.

We have also collated a list of 10 mistakes which investors’ should avoid in a falling market.

Avoid withdrawing money

A common mistake most investors do in a falling market is exiting from ongoing investment which is meant for long-term. During a course of the investment cycle, there will be multiple drops in price due to any reasons.

This drop shouldn’t prompt investors to withdraw money as long as the fundamentals of the underlying asset are strong. Further, investors should continue with ongoing SIP in mutual funds.

The market will recover in long-term irrespective of the fall which is also evident from a case of 2008 financial-crisis which fell over 52 percent but gradually it recovered on a long-term basis.

Avoid buying more to average

Most likely investors tend to fall prey for falling knife in its effort to average the cost in falling market regime. Although there is merit in averaging the cost, it should be done on the basis of only fundamental soundness. Otherwise, it is likely to see a further drop in price if it’s backed by deteriorating fundamental.

Avoid value hunt

It is a general tendency among investors to buy the stock at discount, and especially during the falling market, they tend to go hunt for a value stock. Though this is a good bargain, it requires a series of analysis and studies. Making a random handpick just because a stock corrected could turn into value-trap.

Avoid altering long-term strategy

It is usually during falling market when investors try to change their investment strategy due to short-term events like falling market. This undermines the long-term strategy which will slow down the pace to achieve the financial objective.

The effective way to tackle this short-term event by building a proper asset-allocation which is sustainable in long-run.

Avoid using emergency

In order to fuel the portfolio and capitalize from the falling market, they tend to take leverage position by using emergency corpus. However, if decision reverse it will have a serious implication on financial position.

Trying to invest into favourites at one go

It is always prudent to invest in a staggered manner rather than arguing with the prices about how low is too low.

Getting caught in ownership bias

Fall in the market requires one round of introspection along with a fresh listing of potential winners and losers due to shift in the regime.

Past winning sectors may not be the best way to go. Choose better stocks of today than better stocks of yesterday. Respect the sector rotation.

Tying to catch a falling knife:

Single day falls in excess of 10-15 percent attracts a lot of investor attention. One drastic fall must be discounting some crucial information. Till the time we make peace with the new development, do not get in just cause the prices have come off.

Converting Trading into Investment:

A common mistake is to hold on to a trading position. The stock intended to be booked with 3-5 percent profit is held with a rationale of strong fundamentals when starts falling even beyond 3-5 percent.

This disconnect in the objective of deployment is an error along with the fact that the very fall might cause deterioration in fundamentals.

Exit trades with Stop Loss. Study the stock before investing.

Lack of Active Realignment:

Investors should be active in the day-to-day business of the market but a process of realignment is definitely prudent practice. Keep a track of portfolio beta and adjust it to a low beta or high beta by simply shifting weights as and when situation warrants.

Prudence is in reducing portfolio beta in the falling market and raising portfolio beta after a rising course resumes.

MORE WILL UPDATE SOON!!

Buckle up! Stay light as Nifty50 could retest 9,800-10,000 levels in medium term

The market is expected to remain weak on a medium-term basis.

 

The momentum-based oscillators are in ‘sell’ on near and on medium-term basis. Given the sharp fall over the past few weeks, the market is expected to remain weak on a medium-term basis.

The Nifty 50 index formed a “Bearish Engulfing” on the monthly time frame (September 2018). In general, this pattern has a negative implication for the Nifty 50 index and the market in general. 

Further, the Nifty 50 index closed below its 200-days simple moving average (SMA) for the second day in a row which is not a bullish sign.

The momentum-based oscillators are in ‘sell’ on near as well as on medium-term basis. Given the sharp fall over the past few weeks, the

market is expected to remain weak from a medium-term basis.

Our proprietary Greed/Fear indicator, which is a good sentiment measure of medium to long-term trend for the market, is well below its

equilibrium signalling that the capitulation is yet to come.

Taking that into consideration, the Nifty50 index may attempt to test the zone of 9,800 to 10,000 levels in the near-term.

A) The key indices and major stocks are displaying weak trend on the charts. The breadth of the market continues to remain in the negative

zone, as there are more number of stocks hitting fresh 52-week lows, while there are hardly a handful of them scaling to 52-weeks highs.

Given the negative readings, any sharp fall on the Nifty50 index towards 10,000 may attract some contra-trend buying. Therefore, one has to

be very nimble footed while attempting any such contra trades.

We are yet to see a proper capitulation in the market as measured by key indicators followed by us, therefore, there may be incremental

legs of weakness before the final bottom is confirmed.

Till then, it is better to stay on the sidelines.

MORE WILL UPDATE SOON!!