The global markets are not providing comfort today; the scene in the Asian markets has been gloomy. The pain has spread across all EMs.The US markets have been shut today. The markets needed sentimental support today, which is absent today morning. Both technical reasons like margin calls and sentimental reasons may peg back markets now.
It is the morning after the biggest fall in our trading history and if we were looking for some kind of comfort from global markets we don’t have it this morning. In fact the global picture is every bit as gloomy as yesterday. So no respite China is down four per cent, Japan is down 4.5 per cent, Singapore is down four per cent, Hong Kong is down 6.5 per cent and Korea is down four per cent.
The US was shut. There was pain not just in Asia but across emerging markets, they have all collapsed. So the global contagion continues. Difficult days for the market we just have to get through this really difficult spot.
When it rains it pours really?
Yes, and it isn’t over that’s the message we are getting from the global screen today. There were lots of hopes after yesterday’s close that the market has got terribly oversold in the last couple of sessions and then a pull back was on the cards, it may still be on the cards but I think today will have to face difficulties once again.
People needed a little bit of sentimental prop today and they don’t have that. There are both problems one of sentiment and there is one of technicals right now with margins calls etc and both of them might peg us back some more as we go into trade. This is a difficult situation and though it appears that we are entering the value zone now, I suspect we will have see lower levels before the market bounces back.
Global cues
There are falls across global emerging markets Brazil, Russia they are falling 6-7-8 per cent quite effortlessly. Everybody has got into a panic mode. What we don’t know sitting here today is if there are any kinds of redemption pressures which are coming in from (a) BRIC funds (b) the global emerging market funds because if that is the case and people are withdrawing money then this pain might get aggravated quite a bit. In the absence of knowing what the money is doing at this point in time, we are simply fumbling around looking at valuation levels but that’s never the right way to look at the markets just in the near-term. So till the global pain subsides a bit we have got some problems on our hands.
It is time to be brave but slowly brave not just go out and spend all fire power because if one would have done it yesterday maybe one would have got a better opportunity this morning. So slow and steady that is the trick. These are difficult times, I don’t think it’s prudent to panic quite yet also not be complacent that this is just a correction which will vanish in the next day or two.
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No one is buying in the hurry?
Its a falling knife, so people do not want to catch it but I suspect everybody will now say next 5-10 per cent till we get there and then they will say 10 per cent more. We are seeing reasonable levels.
Asian Indices:
Asia is very dismal picture this morning; cuts are ranging between 4-7 per cent depending on which market you are looking at. So no help coming in from our Asian neighbours this morning.
How do we hope to defend for ourselves today?
It will still be quite challenging because it’s not going to be easy and the only thing one can say is that many stocks are representing value at this point in time. But if you are suggesting that there will be a massive pullback from here, which takes us back to 6,000 on the Nifty, I don’t see that happening in a hurry. This morning too, one would have hoped that there would be a pullback but since we are pegged back such a lot by global cues maybe we get pegged back to slightly lower levels once again and then if there is some kind of buying which comes in then hopefully we will be able to latch on to that.
The problem is sentiment has got damaged completely after this fall. When stocks fall 30-50 per cent then sentiment gets really bad knock and therefore rallies never sustain as we have seen in May 2006 - you rally a bit and that gets sold into and you seek lower levels. So that becomes the problem of the market now that people will not trust rallies and I hope that around these kind of levels 5,000 odd on the Nifty we try and find some kind of support because if we do not, then I suspect we will have to drift down to much lower levels to find support.
Selective buying will probably emerge today for many of the stronger hands, domestic institutions and there is value in many stocks right now, but I suspect there would still be a little bit more pain left in the system.
Big big cleanup being effected at F&O side, will that process continue as well?
It will but a lot of clean up has happened yesterday but it needs to be seen in perspective, we lost 24 crore shares in stock futures and Rs 20,000 crore of OI of course the large part of the OI is the price fall which happened because in most of the stocks because they were down between 10-20 per cent in any case. So don’t think that Rs 20,000 crore of absolute positions have unwound; 24 crore shares fell, which is very large and substantial unwinding has happened yesterday but 24 crore shares fell and we are still 210 crore shares in stock futures that’s mammoth.
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So in the context of the overall OI positions in the market one has lost 10 per cent of the outstanding number of shares in stock futures. Can one say with a conviction that is all the pain or all the weak hands that was in the market, I cannot. Stock futures still have 57,000 crore of positions outstanding. I think that is staggeringly large amount of positions. Only in the context of last three months when stock futures have gone to very high outstanding levels, does it not look extremely stretched but if one goes back just 3 or 4 months back from here I think it could appear that 57,000 crore is a very large numbers particularly in the context of a global numbers which is falling like nine pins.
So my sense is that there is still a lot of pain which could be remaining in stock futures, if the markets falls for the day and if there is some kind of panic that we saw yesterday retail might still go belly up and one could see another 20-25 crore shares in the stock futures coming off quite easily.
The Put-Call ratio has fallen to 0.96, so is it on its way of getting oversold? - Sure, can it fall even lower, I think its important to keep in mind that last time around when that panic happened, the big sell off in May and if I remember correctly the Put Call ratio has drifted down all the way close to 0.8. So, yes we are somewhere getting close to terribly oversold but if 0.96 goes to 0.8 then one can imagine what kind of pain might yet be left in the system.
The other important thing is that there is consistent selling from the institutions, which even the domestic institutions are unable to soak up. Domestic institutions bought 3,600 crore of stock yesterday as per provisional figures but they were overwhelmed by the complete sell off on the futures side and $800 million of provisional selling by the FIIs. So the FIIs and DIIs are netting each other out but the retail selling is leading stock prices down.
We still have some problems with our internals out here, we need to trade really cautiously but the only thing that investors should tell themselves that if there is more by way of technicals unwinding which has to happen maybe they will get their favourite stocks at even better prices and they should be approaching the market with that kind of a sense that my favourite stocks can be found maybe even 10 per cent cheaper than where they are after yesterday’s fall.
There were lot of other pressure points as well that showed up for yesterday. The way money got sucked out and the kind of systemic issues that sprung up like at 2:30pm?
Yes and I think that the FII situation is quite curious because there were clear signs that FIIs were offloading a large part of their prop books and that is a part where much of the pain from the FIIs is coming from now, their prop book unwinding, which is money that they run on among their own account. Are there redemption pressures in General Emerging market funds, I don’t know whether there is redemption pressures is there which is leading to some amount of the liquidation.
One thing, which needs to be kept in mind though is that a lot of the money is still locked in the Reliance Power IPO. HNIs will get their money back most of it will go off to the banks or where they have borrowed the money from but FIIs will get a large part of money ten days later around $11 billion that is a large amount of money. When $11 billion comes in to the market with a market, which has fallen 20 per cent off peak and many stocks have fallen 25 per cent-30 per cent maybe that money starts buying into stocks but that money has to come back.
So I think liquidity is constraint right now both from HNI perspective and particularly from the FII perspective and once that $10-11 billion comes back in early February, maybe we will see some of this liquidity situation getting alleviated a little bit otherwise difficult to see where that sucker will come from the liquidity perspective.
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