HUMPTY DUMPTY HAD A GREAT FALL...

Wow!! What a week this has been. The color red has streaked Dalal Street a month before Valentine’s day.

The fall of the indices has been relentless and throughout this entire week. On Monday, 17^th Jan, the BSE lost a small 89 points – we all looked at it like a blip and usual correction but that set the mood for the rest of the day – something like zor ka jhatka dheere se lage!

Tuesday, it tanked 676 points, Wednesday by 747, Thursday by 580 points and today, it lost 427 points and that puts the of loss  for the week at 2519.

We started the week well over 61k and today, in 5-days we are down in 59k range. Collectively, market traders have lost over Rs.9 lakh crore wealth.

Reasons why the market is falling consistently:

The US Fed is scheduled to announce its policy decision on 26^th night and fears are back over the inevitable rate hike. It won’t happen this month; will happen only by March. The rate hike will happen only when the entire tapering process is completed. But once the cycle turns, some four rate hikes have been predicted for 2022.

The surge in the global bond yields and the asset re-allocation once again in gold and other currencies are pointers to this same fear factor, prompting traders to become more risk averse.

RBI is expected to announce its interest rate decision on 9^th Feb – marketmen are pretty certain that a 25 bps rate hike will come in. Psychologically, a rate hike hits though logically, it means that we don’t need crutches and help to stand, the economy can, rather, has to limp back to normalcy.

The stocks to some extent have been overvalued and this is more of profit booking. This kind of correction is essential for increasing the depth of the market.

FIIs have been net sellers; so far this month, they have been sold equity to the tune of Rs.12,500 crore.

Global oil prices have been shooting up for a month now, reaching $90/barrel mark; this is the last thing we needed when inflation as such is on a high.

Earnings are already showing pressure on margins due to rising inflation; raw material prices are on the rise and many companies have already resorted to price hikes, which will fuel inflation further.

We are exactly 11-days away from the Union Budget and the current sell off could also be attributed to profit booking ahead of the D-day.

Points to ponder:

Its not just the Indian markets which are falling; even in the US, indices have been down for this entire week. Its human tendency – we feel better when we know that others too are in deep waters.

FIIs have been net sellers but DIIs have been net buyers – this month their net buying is to the tune of Rs.7162 crore.

Retail investors are continuing to invest in the markets and that is indeed a force to reckon with – in 2021, value of retail equity holdings went up by over 60%, the number of active dematerialised accounts registered an increase of over 30 million.

There is the third wave but it is not fatal as the previous ones and hospitalisations are lower and with restrictions slowly being removed, economic activities will bounce back again.

The truth – 2021 was a dream run for the markets as we bounced back from a much lower base. This year too will be good but indices might run on adrenalin like the 2021; it will be more tempered. Once rate hikes start, some funds from retail investors will start moving back to FDs but then again, a tiger who has tasted blood will come back again and again.

Our advice – don’t rush in to buy aggressively. Stay away from penny stocks and small caps, buy only into large and some midcaps, with IT, realty, construction, banking, financials expected to fare better.