Home > Market View, NIFTY Strategy > NIFTY ends down on a volatile day

NIFTY ends down on a volatile day

Friday, November 2, 2007 Leave a comment Go to comments

Yesterday was a volatile day and NIFTY ended in red after making a dash at 6000. Usually what happens on such days is that there is a lot of euphoria in the beginning of session. Everyone starts to celebrate the 6000 milestone. Seeing the stocks going up at a rapid pace, many intra day traders can’t resist themselves and just jump in!
This is what happenned when lot of people jumped in seeing those gigantic moves. The smart traders took advantage of this euphoria and dumped stocks at higher levels. So when suddenly markets started coming down, these “euphoric” people had to pack their bags and cut their positions at the end of the day. This caused a larger than anticipated fall in the end.

The markets remain on an uptrend as long as 5700 levels are maintained. Many market participants shall be using the falls to accumulate good stocks. Somehow people have to the conclusion that global factors don’t affect India in a big way. It needs to be seen as to what effect will US slowdown have on India.US in recession and India growing at 10%- to me this looks very unlikely! But this is certainly going to dampen the sentiment on IT.

I am just betting big on commodities like Oil and Gold. There is lots of money that can be made outside the world of stock markets. These times require an urgent need to churn your portfolio and change your asset allocations. I feel this is what is happening at a global level which is causing so much volatility.

Advertisements
  1. Hari Swaminathan
    Sunday, November 4, 2007 at 11:09 pm

    One of the missed headlines of the past year or so is that Pakistan has been experiencing 7% growth in GDP. A very respectable number if its true (Some experts believe Pak is fudging these numbers to try to look attractive vis-a-vis its rival India.). With the current turmoil in Pak, I think it makes India even more attractive. One of the great things that have happened in the last 10 years of globalization and post-9/11 world is that westerners now have a clear idea of where different countries stand on socio-economic, cultural, ethnic and moral grounds. Previously, their information would have tended to club an entire region into 1 bucket. That is no longer the case.

    Sage – to the issues you have raised –
    I feel that (and this is only my opinion) that if US economy becomes a financial mess, the knee jerk reactionary thinking might suggest that Indian BPOs and IT outfits will get hit. But we have seen such an incident when the tech bubble burst, and its exactly this kind of environment that gave birth to the major outsourcers. If US companies are under pressure, they will be even more motivated to send work to India and other places.

    Granted all countries are linked together via capital markets and flows, but I believe Indian markets are relatively isolated from the housing sub-prime mess at least. This is because by law, the Indian government (as of 2 months ago) was not allowed to invest its foreign exchange in risky securities, meaning anything except Treasuries of US, UK etc. I believe this law has been changed now to give Indian govt more flex with its investments, but its safe to assume that there is no exposure to the sub-prime mess.

    Overall, India remains mostly an internal story except for IT and BPO. And though these are large industries today, other sectors are gaining dominance and capital markets have already started discounting IT and BPO companies vis-a-vis the other sectors.

    We’re definitely entering a period of volatility, where opportunities for profit will be dictated by how well you can jump in and out of positions. Any big drop of 3K or more is an opportunity to buy and hold longer term – but until then prudently trading in and out makes sense.

  2. sagecapital
    Sunday, November 4, 2007 at 7:57 pm

    Vishal:
    Everything affects stock prices if you believe so. I have even seen people using astrology to predict markets!
    Going by your logic even instability in Nepal,Bangladesh and SriLanka should have affected Indian markets! Did it have an effect?
    All I can say is that if markets fall tomorrow market commentators might attribute it to this “Pakistan” factor.
    A more important thing-Did you observe that markets fell despite FII buying on Thursday and rose despite FII selling on Friday?
    Now I don’t know how the newspapers are explaining this. They certainly can’t say that “markets are down due to FII buying”!
    So its better to focus on your investments and trading rather than the news and reasons.The financial media makes it money at the cost of gullible investors who jump into the stock based on the “hot news”.

  3. Murtaza
    Sunday, November 4, 2007 at 3:04 pm

    Any ideas on what the impacts of the Pak Emergency can have on the Indian markets on Monday?

  4. Vishal
    Sunday, November 4, 2007 at 10:39 am

    Hi Sage

    Just like solar eclipse / lunar eclipse affecting the human beings, what about emmergency in our neighbours house on our markets ?

    regards

    vishal

  5. sagecapital
    Sunday, November 4, 2007 at 8:25 am

    Hari- Another important question we need to answer is “the impact on India” of this financial crisis.We managed well during the 1997 Asian crisis but at that time we were not that much integrated into the global scheme of things.
    I know many market commentators are taking about de-coupling of Indian markets with the rest of the world.I somehow don’t buy that argument.
    First, IT sector has played a major role in fueling India’s growth. Most of the “middle class” which the media is gung ho about, actually comprises of IT and BPO employees. So any kind of slowdown in the sector as a result of US recession can definitely slowdown domestic growth!
    One major supporting factor for Indian markets is the flight of capital from the developed economies to the “emerging economies”(result of falling dollar). But in times of crisis,people just sell their equity portfolios and move into cash.(this is what happened back in August)
    So any financial tsunami in the US shall result in some tremors in India. Export led economies like China and Japan might have severe impacts. So this situation poses a big risk to global equities.
    I won’t go as far as 3-4k on sensex but definitely the avg PEs can drop from 20 to 13-14 and if earnings also also take some hit, then one can easily see a 40-50% cut on the indices.
    I am not sure that this scenario will actually pan out but it pays a lot to be mindful of such risks. In this connected world things happen real fast!
    This is the reason why I am advising sophisticated investors to spread their bets.

  6. sagecapital
    Saturday, November 3, 2007 at 12:57 pm

    Ashish- Have a nice vacation and happy Diwali.
    Do trade a bit on Muhurat Trading(Even if it is a single stock).Its considered auspicious.

  7. ashish ji
    Saturday, November 3, 2007 at 9:51 am

    Sage- I am going home for Diwali! Happy Diwali to all of you!

  8. Hari Swaminathan
    Saturday, November 3, 2007 at 4:50 am

    The subprime mess is definitely going to get worse. As you know, I’m an advisor for an online Real estate company here, and therefore have intricate knowledge on this matter. In the coming year, the sub-prime mess is going to encroach into the “prime”. This means normally creditable borrowers are going to default. This is because fixed interest rates given to these consumers will become “floating” in nature. Several consumers have taken out loans at 2% and 3% during 2002 and 2003 which were valid for 5 years or so. These are going to reset to 7, 8 and 9 %, making their mortgage payments double in many cases. Increased mortgage payments means less and perhaps no money left for discretionary spending. There goes the US economy if consumer spending trips.

    My only point with my previous post is that debacle may have at least been postponed with the latest GDP numbers. The disaster is waiting to happen for sure, its a question of when. In India, we need to unwind positions before this collapse, because the Sensex will drop about 3K to 4K when this news breaks.

    Hari –

  9. sagecapital
    Friday, November 2, 2007 at 11:00 pm

    Hari-
    My sense and feeling is that this “subprime” ghost is going to haunt US banks for a longer time. Still we don’t know as to how many losses are these investment banks making on credit derivatives.This might result in more financial turmoil in the coming months. And all this happened because some people chose not to respect “risk”.

    To what extent does India gets affected, remains to be seen. RBI has been really doing a great job in ensuring financial stability. I really like the way it hiked the interest rates at the right time to slow down things.
    Even Mr. Reddy candidly admitted that he is “uncertain about global uncertainty”.

  10. Hari Swaminathan
    Friday, November 2, 2007 at 7:48 pm

    Sage,

    The good news is that US Q3 GDP growth numbers came in very favorably at 3.9%. This should at least calm down fears of a US recession for now. I heard a very insightful person on Radio here break down the 3.9% number – lot of it is Fed government increases in expenditure and a few other line items that are non-recurring nature. I believe him when he says that the 3.9% masks a lot of problems in the US economy. Consumer confidence took a major dive in the US in Oct, which is always a good indicator of what’s happening at the street level to the common man. The atmosphere is very gloomy (you can always feel optimism/pessimism in the air). But for now, as far as the Indian markets are concerned, the 3.9% is a great number and we can postpone US recession fears for at least a quarter..

    Hari

  11. sagecapital
    Friday, November 2, 2007 at 4:21 pm

    Anupam-You are welcome. We also had a good day. Infact one of our bets hit the upper circuit today!
    SBI hit a new high today giving us a few more smiles 🙂
    And RNRL and RPL- the game might have just begun.
    My only worry is when I see people take “excessive risk” without knowing the consequences. I am just waiting for the day market throws out such people. Especially after 5000, I see a lot of novices jumping in hoping to make quick money and many of these folks don’t even know what a loss is!
    People come to me and say-I made 30% in last 3 months.So can I make more something like 20%/month with your ideas?
    All I tell these guys is that I can double your money in one week if you are ready to lose all of it 🙂

  12. Friday, November 2, 2007 at 3:31 pm

    Thanks Sage, made merry today. What a comeback!

  13. sagecapital
    Friday, November 2, 2007 at 9:37 am

    Amit- Watch for 5700 on the NIFTY. And use the panic to buy stuff (large caps).
    If you have short term bets, then you might be stopped out today.

  14. amit
    Friday, November 2, 2007 at 9:36 am

    sage,

    if it NIFTY closes down 2-3 % today. i think its sign for trend reversal…. wht do u think

  15. amit
    Friday, November 2, 2007 at 9:33 am

    Hey Sage,

    Today all world markets down around 2% , is today again a black friday for Indian market ??

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: