Investors should stay in cash, not sell in panic - Udyan's Comments

was not one of the worst weeks – it was the worst week ever. The market down 15% is as bad as it gets. It is completely unprecedented and unexpected. One does not expect to see largecap names lose 25-30% of their market cap in just one trading session flat. That’s exactly what has happened today and there are lots of reasons and lots of things which have happened in the market from Infosys, to the cash reserve ratio (CRR) cut, to the Index of Industrial Production (IIP) number, to the Finance Minister and the SEBI statements – it has been very eventful as a day.

But at the end to look at stocks like Reliance Communication down 23%, ICICI Bank down 20%, Reliance Infra down 20% - stocks in the index giving up 1/5th or 1/4th of their market value in a single session, tells you what path sentiment has come at, at this point in time. So global panic, bad local macro numbers and nobody wants to buy – there are only sellers in the market – this is classic capitulation and a bear market in full flow.

It was debilitating week for sentiment and while it has been looking oversold technically for the last couple of days, but that’s not making any difference as one can see on the screen.

On ICICI Bank:

The market has such conviction in hammering a stock down so continuously despite all sorts of clarifications coming in. Look at the sequence of events. The management has clarified not once, not twice, but thrice. The RBI has clarified; the Finance Ministry has clarified that ICICI Bank does not face any kind of problems, and yet the stock falls at the rate of 20-25% a day, which tells you that the market probably knows something that we do not.

The market is a very clever beast. When clarifications are given and the market takes it on board, then there is no reason to fall like this. You can see that ICICI Bank probably does have a fairly reasonable liquidity position if not an utterly comfortable one. It doesn’t seem to be in any kind of problem that western banks seem to be in. Yet the stock price is falling.

I doubt whether this is any kind of concerted bear hammering or anything like that. My fear is that the market knows something that we are not aware of today, which might unfold over a period of time. I hope that the market has got it wrong. For the moment, we take the management’s clarification at face value, and it doesn’t appear that ICICI Bank has any kind of liquidity problem or is about to go belly-up or anything like that – far from it. But the screen makes you worry quite a bit about how things are progressing.

On markets this week and the week ahead:

Enough damage has happened this week in four trading days to lose 15%, which is something that one doesn’t expect. I have been saying throughout this week that the market seems a bit overdone on the way down, and at least a technical pullback is likely and plausible. That has not come this week. That expectation has been belied. I hope it fructifies next week.

So, I don’t know whether next week again if there is more global turmoil tonight, the Sensex and the Nifty fall further and maybe the Sensex falls to sub-10,000 levels, and from there maybe there is more regulatory action, and the market moves back. But essentially for the moment, it appears that between 3,000 and 3,800 Nifty, and between 9,000-9,500 on the Sensex on the way down, and I suppose 11,000-12,000 on the way up, the market is probably rangebound. There could be more downsides. But on a day-to-day basis it is very difficult to predict.

For investors probably it is too late to sell. We are less than half of the index level of January. I think if you haven’t sold already you can hardly sell stocks that are down 80% from their peak values. So, it is tough to sell at these prices. Is it easy to buy? Not quite yet. So, I think investors should probably sit on cash, and not sell in a panic. They should probably not do anything and just watch the situation unfold over the next few days.

Source: Moneycontrol