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Stockmarkets: Where are we headed?

Jul 27, 2000

The markets tumbled nearly 150 points on Wednesday raising concerns that the bounce back on Tuesday was only an aberration. Talk of the Sensex heading down to 3,800 is widespread. Where are we headed? The Chief of India's largest domestic mutual fund has recently been quoted in a leading business magazine as stating that he expects the BSE Sensex to touch 6,000 by Diwali. These are comforting words for market players who in last 10 trading sessions or so have seen the markets lose over 800 points. Yesterday's sharp fall has only reinforced the belief that the bearishness is likely to persist longer.

The puzzling part of the entire situation is that all market participants (leaving aside the die hard pessimists, ofcourse) agree that the Indian economy has come out of the slow down. This recovery should only strengthen in coming months. Ideally such optimism should reflect in a more buoyant stock market but instead what we have witnessed is a strong bearish sentiment.

Read more on the Indian Economy

One key reason for this, and we have been harping on this over the last month, is that the buying interest in the markets has been skewed among the various participants (mutual funds, FIIs, retail investors and momentum investors). The FIIs have been on the sell side since mid June. The Mutual Funds too have been large net sellers since then. The momentum investors, after a brief bullish outlook, too, have been limiting exposure to the markets. And finally, the retail investor, that's us, has been left all confused (and in many cases with lots of losses). The result is that we have a market where none of the large players is committing funds.

Will the situation improve in the coming days? Let's put it this way - for the situation to improve we need a trigger. Whether it be FII buying, disinvestment or some good economic numbers. Unless there is some trigger it is unlikely that the situation will alter dramatically.

Where are we headed? The sentiment is largely bearish even as value investors are having a field day picking up good stocks with attractive valuations. And that too in large quantities. Who ever said that there are little buying opportunities in this market!

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