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Confidence Will Take Time To Revive

Monday, November 21, 2011
By Deepak Sahijwala

For the past few weeks this newspaper has been holding a pessimistic view on the markets. And infact just last Monday our in-house Technical Analyst Dominic Rebello had through a headline advised investors to “Avoid Buying” His reasoning was based on technical factors. On the fundamental and international front also, this column had a similar view and had stated “that uncertainty stares the world in its face.  We are facing uncertainty too... More so, because inflation remains untamed even as economic growth slows down. This is reflected in the sharp deceleration of IIP growth numbers of last week. In fact IIP growth has tanked to 1.9 per cent, the lowest in two years. And now the slowdown in the economic activity, as also investments, has begun taking its toll on markets…. Investors must remain aloof and refrain from taking investment positions, at least until a clearer picture emerges.”

In an earlier issue, while the markets seemed to have regained some strength and was seemingly becoming euphoric, we had advised you to “Stay cautious…” saying that “We may be seeing a disconnect between the stock market and the economy” Our assessment than was that despite both the Nifty and the Sensex rising 5% in a week, it perhaps was “too early to jump into the buying frenzy.” That was on October 17th.

Our fear than was that it may be a bear market rally and ” An investor must remember that bear market rally’s are treacherous and always display symptoms of a bull market move, then most often end abruptly.” That seems to have exactly happened and was proved by the sharp decline of the past seven consecutive sessions. In number terms the indices have lost over 7% in that period. Certain mid-cap and small stocks have also seen their valuations erode by over 20% in the past two weeks.

So where do we stand now? In my opinion, although the markets are seemingly oversold, it is unlikely that a buying rush will emerge. Sentiment is badly bruised and confidence will take time to revive. We are in a bearish trend and therefore every rally should be viewed with caution.

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