Mumbai, Aug. 16: After the market mayhem on Friday, the Oracles on the Street say investors must brace for more pain.
Friday’s carnage was brutal with investor wealth worth over Rs 2 lakh crore lost in the market meltdown.
Market mavens do not discount the possibility of a small relief rally early next week. But they believe the medium-term outlook for the market isn’t good as several factors could pull the indices lower.
The big trigger for a fall is the gradual withdrawal of the US Federal Reserve’s bond purchase programme, which is expected next month. But there are worries about the announcement of fresh measures by the Reserve Bank of India to sandbag the rupee. Upcoming state and general elections and an extended pause on interest rate cuts could muddy the prospects for a rally.
Some experts aver that this is now a typical bear market — a period in which asset prices fall because of mounting pessimism.
“Today, our markets took a complete nosedive ever since they opened with half a per cent downside gap. This is a perfect instance of a bear market,” said Shardul Kulkarni, senior technical analyst at Angel Broking.
While experts do not want to hazard a guess on their year-end outlook for the Sensex at this point of time, there are a few Cassandras who think the benchmark index may even plunge to the 15000-mark if the government fails to take corrective actions.
Recently, at least two foreign entities had cut their March 2014 target for the Sensex with Nomura bringing it down to 20000 from 21700 and Goldman Sachs lowering the Nifty target to 6200 from 7000.
“The problem with our markets at this point of time is that while the FIIs have either been selling or not buying aggressively, there is a paucity of buyers with the only purchases being done by Life Insurance Corporation. Retail investors continue to stay away from the markets,” said Arun Kejriwal, director, KRIS.
An analyst from a foreign brokerage added that the markets was still “under-estimating’’ the potential impact of withdrawal of the monetary stimulus in the US.
“We may have to pay a heavy price in terms of FII flows, unless steps are taken both by the government and the RBI to restore confidence,” he said.
The analyst added that with the crisis in the forex markets unlikely to fade away soon, banking stocks will come under pressure in the immediate term. With inflation for July hitting a five-month high, the chances of the RBI announcing a rate cut have been virtually ruled out for now.
Incidentally, yields on the benchmark 10-year security today climbed 38 basis points to 8.88 per cent. This is seen as negative for the banking sector as they could face treasury losses on the portion of their bond holdings that must be marked to market.
Another worrying factor for the lenders is the rise in bad loans (resulting in higher provisions) because of the ongoing economic slowdown.