No Respite From Carnage

Friday session put paid to all expectations of bottoming out as benchmark indices nosedived. It looked like for first four days of last week as if 5400-5450 would prove to be a formidable support zone but one-sided move on Friday was enough to push even the hardcore bulls in a corner. Nifty lost over 130 points to slip below 5400 while Sensex shut shop just around 18k. This was the worst close in around 6 months. Carnage was seen across sectors as sentiments turned hugely negative towards the later half. On weekly basis, it was the relatively safe sector, FMCG was the worst impacted. BSE FMCG index lost over 6% during the week as investors sold heavyweights like ITC and Levers. Realty, Auto and the IT were the other ones that suffered the most, losing around 3% each. BSE metal index managed to eke out marginal gains on a relatively better show by Hindalco, NALCO and Tata Steel. Again, the global backdrop was positive as US indices moved to new post-Lehman highs. Local issues continued to bother investors.

Our expectations that Nifty might have seen a credible low around 5400 and we could see a sustainable rebound came to nought on Friday. The sheer momentum of the fall was unnerving as Nifty collapsed almost 185 points from its intraday high of 5556. Fall was aggravated due to weekend unwinding as traders rushed to square off any long positions. The fact that the worst impacted stocks were the ones that had held on relatively well suggest that investors and traders are in a panic mode now. The momentum is usually at its highest closer to the peaks as well as bottoms. Again, despite the sharp fall on Friday we do believe that Nifty might be closer to bottoming out though the momentum suggests otherwise. We have already seen correction of around 15% from November top and usually the normal corrective moves are of 12 to 17% magnitude. Then as already suggested on earlier occasions also Nifty provided stiff resistance between 5350 and 5500 when we were trying to move higher. As an INVESTOR with at least 6 months view it would be advisable to invest a part of investible funds in companies that have shown good quarterly numbers. As a trader the momentum is still down and it would be better to wait for some bottoming out patterns to emerge before attempting long positions. 

Nifty now has immediate resistance around 5440-5450 while immediate trend would change for better only on a sustained breakout beyond 5550.