Gautam Shah of JM Financial Services said the Sensex may find support around 17,300. "The Sensex can easily bounce back 500-700 points but the key is how US markets behave overnight. It can bounce back to 18,500 and then fall again." The Nifty has strong support at 4,500-4,600 levels, he said
He feels the worst may be over in the short-term. "The markets are likely to stabilise at current levels. It looks deeply oversold on the daily charts. However, I see more downside in the medium-term."
According to Shah, traders can look at going long at current levels. "However, investors may have to take more rational decisions in the next few days."
US markets are very close to important support levels, he said. "A rebound in the US can cause emerging markets to recover."
Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Securities, said there has been a complete withdrawal of buying from all segments. "Earlier, FIIs were selling but that was being absorbed by retail players."
He feels the market was set up for a steep fall. "However, the extent of loss was surprising."
According to Agrawal, forward multiples on the Sensex have fallen from 20-21x to 17-18x. A lot of technical levels have also been hit on the downside, he said. "The valuations of many stocks look interesting now as they have come down to reasonable levels."
He feels a lot of uncertainties remain in the US markets. "The current environment is very different from the situation during 2006 fall."
Excerpts from CNBC-TV18's exclusive interview with Gautam Shah, Raamdeo Agrawal, and SP Tulsian:
Q: How badly have the charts and technicals of the market been shaken after today's bloodshed?
Gautam Shah: It is quite unfortunate that it has happened today. I guess it was coming, because the price action over the last four-six weeks has been indicating indirectly that the demand-supply scenario of the markets was changing. Let us no forget, the Sensex has corrected 10%, four-to-five times in the last three-months and it has recovered equally fast.
So, when in an uptrend, if a market can lose 10% and really make a comeback, if we have to get into a downtrend, which we think we are right now in, we can easily lose 20-25%. That is what has really happened in the last few trading sessions. From a technical perspective, there was this perfect bearish wedge pattern on the charts, which was visible, and that pattern has an ideal target of about 17,300, which has been tested today.
I would like to believe that from these levels, there could be some stability in the market going forward. We might just now trade in a band of 17,300 to 18,500. At the same time, this is a market, which will now start to make lower tops and bottoms. If one is looking at it from a medium-term perspective, there could be more downside. But from a short-term perspective, the worst might just be over for the time being.
Q: Are you a little surprised to see the ferocity with which the market has come off today? What could be the reasons which led to such a massive sell off in your eyes?
Raamdeo Agrawal: It is a complete withdrawal of purchase from institutional side and a complete consensus that the market must fall. On top of it, foreign markets are coming down. Foreigners own 21-22% of market capitalization and they are typically present in all the front-end stocks, which are basically weighing on the Sensex. They have got a brilliant opportunity and actually they have been selling. There was a kind of notice to the market that foreigners are very relentlessly. In a very determined way, they were selling for quite sometime. Domestic players ‑ retail or whatever ‑ were absorbing all the selling of foreign institutional investors. The combination of the IPO and secondary market excesses was what led to the fall. It was just set for this kind of a fall. I would have not even imagined above 1,000 but doing 2,000 in a day, was completely unnerving in terms of investing.
It just makes you uneasy. In one day, things can fall so much that it can just change valuations itself. At 17,000, we are talking about may be 15-16 times next year, currently it would be something like 17-18 times. It completely changes from the 21-22 times current year to more like 17-18 times. May be at this juncture, this fundamental top may not be of great use because it is all driven by pain payouts and the current capacity to pay. A lot of correction has taken place. The 200-day moving average, which is at about 16,500, has also been more or less touched. So, a lot of things have happened which is very surprising and fast.
Q: The possibility of now sinking all the way down to 4,500 on the Nifty has been mentioned, do you see that as a real possibility or do you think we will get around with this support at 5,000 levels on the Nifty?
Gautam Shah: For the time being, we should stabilize at these levels. We have lost 4,000 points on the Sensex in a matter of seven trading sessions. That is pretty huge. The reason why I would like to be slightly positive at these levels is not because of local markets but because of US markets. The US markets, which has really been leading the emerging markets fall, is close to very important support levels.
The Dow Jones Industrial average has lost 1,500 points in a matter of two-weeks ‑ 13,500 to about levels of 12,000 ‑ that is a huge support for the Dow. If the Dow were to rebound in the next few trading sessions, it might just bring a little bit of recovery for our markets. Emerging markets tend to recover really fast like what we have seen in the last two to three-months.
For the time being, I wouldn’t be very bearish at these levels. Yes, the charts still do not look good. We will make lower tops and bottoms and over the next couple of months. There is a possibility of the Sensex going down to 16,000 levels, which is about 4,500-4,600 for the Nifty. For the time being, these are levels where traders can indulge in bottom fishing in case they really liquidate at higher levels.
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