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Sensex, Nifty extend fall; Volatility to rise further

Monday, November 21, 2016
By Dominic Rebello

Benchmark share indices, BSE Sensex and Nifty fell for all the five days of the week. Over the last week, the Sensex crashed 668.58 points, or 2.49%, while the Nifty plunged 222.20 points, or 2.67%. Over the last four weeks, the 30-share barometer has lost 1,926.94 points, or 6.86%, while the 50 share Nifty has crumbled by 618.95 points, or 7.12%.

Among the several factors that led to this fall is the uncertainty across the global market with regard to US President elect Donald Trump, the demonetisation drive of the government, which began of November 8 has led to a severe cash crunch, which is likely to affect India Inc Q3 earnings prospects, the free fall of the Rupee and the rate hike by Federal Reserve in December, dented the market sentiments and led to a free fall of the indices.

Corporate profits for the third quarter will be adversely impacted by the Centre's move to demonetise Rs 500 and Rs 1,000 notes with sectors such as automobile, FMCG, retail, consumer durables expected to be hit, said Motilal Oswal said in report titled 'Demonetisation: Feedback from the Ground Zero'. With low circulation of money, household consumption has taken a hit and caused business across sectors to decline in the range of 30–80% within the first five days of the demonetisation move. We believe autos, FMCG, retail, consumer durables, mid-caps, cement, telecom and NBFCs could see earnings downgrades for 2016-17, the report added.

The government decision to root out black money, announced the withdrawal of old high-value currency notes of Rs 500 and Rs 1,000 from circulation, with effect from November 9, which severely affected real estate, metal, consumer goods among others sectors.

This week the markets are expected to remain highly volatile on account of  derivatives expiry, global markets, Parliament proceedings and demonetisation.

“We do not expect prevailing volatility to ease in upcoming week too, due to scheduled expiry of November month derivative contracts. Also, participants will be keenly watching the updates related to demonetisation and proceedings of parliament, where government will try to get the key legislations related to GST bill pass, for its timely implementation.

Traders will be also be eyeing some important result announcements in the final days of earning season, Larsen & Toubro, Bata India, Cox & Kings and Timken India will report their numbers during the week along with others,” said Jayant Manglik, President, Retail Distribution, Religare Securities. After four weeks of slide, Nifty is now in oversold territory and has crucial support at 8000 level so there’s possibility of some rebound in the expiry week but sustainability seems difficult at the higher level due to existence of multiple hurdles and prevailing negative sentiments. So, we reiterate our cautious view on markets and suggest maintaining hedged positions until situation stabilises, he added.

"We believe currency demonetisation to continue putting its impact in the market emotion and consequently driving the sentiments. Moreover, there is not much of economic event due this week so it's all demonetisation news to play the role," said Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments. "During the week if bank deposit growth rises more than expectation amid demonetisation of currency then market is expected to take it positively," he added.

Experts are keenly view key global macro data release this week which are likely to have a bearing on the market sentiments.

“Among global market news, US Existing Home Sales data for October 2016 will be unveiled on Tuesday. The German Manufacturing Purchasing Managers' Index (PMI) data for November 2016 will be unveiled on Wednesday and Germany's Q3 Gross Domestic Product (GDP) data will be unveiled on Thursday. While UK's Q3 Gross Domestic Product (GDP) data will be unveiled on Friday,” said Vijay Singhania, Founder-Director, Trade Smart Online. "Back home, liquidity issue continues to hit the economy due recent demonetisation move by the government. While the ongoing disruption in the Parliament session will continue to affect market sentiments," he added.

Manglik advised investors to  maintaining hedged positions until the situation stabilises. After four weeks of slide, Nifty is now in oversold territory and has crucial support at 8000 level so there’s possibility of some rebound in the expiry week but sustainability seems difficult at the higher level due to existence of multiple hurdles and prevailing negative sentiments, Manglik said.

“The massive fall in the stock prices on fears of slowdown seems to be overblown from stock market’s perspective. It is well know that markets are a six monthly forward discounting machine.  Any negative events whose effects are to be felt within one or two quarters are almost always discounted. Thus there is nothing that investors have to worry regarding the effects of demonetizing high value notes, as it is already discounted in the market. The recent swift fall therefore creates a compelling opportunity for buying great businesses,” advised Jimeet Modi, CEO, SAMCO Securities.

One way of beating the market is investing via Systematic Investment Plan (SIP). SIPs help investors to invest in markets through mutual funds. SIP is a method of investing a fixed amount every month in a mutual fund scheme. Over the long term the markets have given positive returns. One of the biggest advantage of SIP is that you do not have to time the market. A certain amount is deducted through ECS gets invested in the mutual fund scheme.

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