Crisis of Confidence

The damage in mainline indices doesn’t truly reflect the kind of carnage that was seen in many stocks. Nifty showed a cut of only about 1% at the close but a look at the list of losers and the kind of damage, reflects the true story. The whole ADA pack was massacred on account of heavy unwinding. R-infra, RMedia, RCom and Reliance Cap lost between 14 to 20% each on huge volumes. Most of the selling was seen in the last 60 minutes. The selling was not restricted only to this group as there were many stocks that suffered more than 10% cut and that too on big volumes. The list includes Aban, BEML, LITL, Bombay Dyeing, Orbit, Punj Lloyd, Onmobile, IVRCL Infra, Srei Infra, GMR Infra, JP Associates and TTML. Most of the stocks on this list have been under severe bear pressure for past few sessions and had already seen significant erosion in mkt Cap even before today’s big cuts. The list of losers was a big one as breadth was hugely negative. As seen yesterday there were no buyers even at lower levels. There is a clear crisis of confidence at bourses and nobody wishes to even look for bargain buys. Mid and small caps continue to be sold into as reflected in more than 3% cut in madcap index. Few stocks that managed to prop up index were Infosys, M&M, HDFC, HUL and Sun Pharma. 

The kind of deep cuts with very big volumes suggest almost a capitulation kind of situation in various stocks, if not in the index itself. Almost all stocks that suffered double digit percentage losses did that on above average volumes. In some cases like the ADA pack it was almost 4-5 times the average. This has come after a sustained bear trend in most of these stocks. This could suggest capitulation and while it may not be a one- day affair, it does point towards almost selling climax. But, it would be better to look for certain other signs, technical as well as psychological before deciding to cherry pick. Nifty continues to make new lows on almost daily basis. 5325-35 is the immediate resistance level while stronger one are placed at 5380-90 and 5440-50.