Knock Out!

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The markets have witnessed a bloodbath and carnage of sorts over the past one week thanks to the various political and governance issues. In the larger picture of things, the indices have fared slightly better than the individual stocks. A deep sell-off saw the markets witnessing a low of 5,690 in Nifty and recovering thereof to settle 47 points down while the Sensex lost 181 points. The broader markets also took a hit with the mid-cap index losing 1.9 per cent and the small-cap index down by 4.3 per cent. The stocks related to the ‘loans for bribes’ cases were the ones in the limelight where the expectations of more skeletons tumbling out of dark closets are ripe.

The stocks of HCC, India Infoline, LIC Housing Finance, J P Associates, and D B Realty displayed double-digit cuts. And it was only because of blue-chip stocks like SBI, SAIL, TCS, and Cipla that the Nifty was sustained at these levels. The panic unleashed on account of the loan scandal and its impact on the real estate as well as the banking sector led to mayhem in the market. In addition to this, we have witnessed margin calls being executed in the last couple of days, leading to basket selling in certain stocks because of not getting honoured. The big question now is about what the investors should do in this scenario.

For one thing, the investing fraternity would welcome the sell-off as there were many waiting to enter the markets. The rally that was missed by many seems to have paused to get fresh money coming in. We are now seeing quite a few investors stepping in considering that the markets are now offering fairly attractive buying opportunities. It seems like a healthy and systematic correction in favour of a rally. New funds would enter the market at every dips. The recent sharp fall might be able to sustain the mark of 5,640–5,720 and we may witness an upward movement after this consolidation. The primary market is getting bigger and better with every new offering. The government is burning the midnight oil for new offerings to be launched within the shortest time possible. The IPOs of ONGC, IOC, MOIL, and SCI, among others would surely prove to be the next big triggers for the rally. The historical listing of Coal India would prompt broader retail participation and hopefully invite fresh money into the markets.

If we look at the sectors affected by all this, we find that the generous monsoon this year and the resulting cultivation scenario across the country have the possibility to lead to record production of foodgrains for the next 12 months. As such, the fertiliser sector looks attractive at the current levels and might outperform the other sectors in the months to come. Among others, the sugar stocks would also be in the limelight as the worst seems to be over for this sector. Interestingly, though the auto sector has moved sharply, the underlying auto ancillary companies are yet to be seen getting into the limelight. We would recommend retail clients to use the dips as buying opportunities. Reading between the lines, one can conclude that the market will remain quite stable since all the current issues seem to be blown out of proportion. Stock picking would start within a week’s time when the markets would be in the consolidation phase.