Sensex registered one
of the biggest falls since 2009, 18300 will be crucial on downside.
Sensex had a Gap down opening of around 70 points on Friday
and prices failed to take any support near important levels. The selloff
intensified during the 2nd half of the day and Sensex lost
exorbitant 770 points or almost 4% by the day end. This was real carnage seen
across the Indian equity market. BSE Midcap and Smallcap indices lost around
2.7% and 2.15%. The advance decline ratio deteriorated with 713 advancing
against more than 1600 declines. However, this is still not extreme breadth
figures we have seen but nevertheless it is still very poor. Negative closing
of such severity was last seen on 6th July 2009 when Sensex
registered a fall of 870 points. Prior to that selloff of such magnitude was
seen in bear market of 2008. Many people are now realizing the bear market in
India after index has shown its weakness but we have said this before as well
that Indian equity market is already in a big bear trend since many months as
Advance decline line has constantly deteriorated. Sensex is now only witnessing
the selling pressure which has been happening in broader market for quite sometime.
Sensex daily chart:
USDINR future hourly
chart:
There are many logical explanations that are coming after the
severe fall registered on Friday which looks logical on face value but are
unjustified. Without any major event during the day, Rupee has been facing all
the blames followed by US FED and rumors of FIIs moving out of India.
Blaming the Rupee?
USDINR (futures) made a high of 62.18 on Friday against registered 61.79 on 8th July.
On 6th August itself INR
touched 62.12. Friday’s depreciation
in currency futures was mere 6 paisa
above 6th August and 39 paisa
above the high of 8th July. I am astonished to see without any other
event plausible to blame it is the Rupee that is facing all the heat! Also
there can be confusion in the causality here. It was previously believed that
fund flow into Indian equity market supports Rupee but this time Rupee is said
to be the reason for equity selloff. I do acknowledge the fact that INR
weakness makes it unfavorable environment but it is not the sole reason to
blame for equity selloff.
If Rupee depreciation is the prima facie reason for weak
equity markets then food for thought is why did Sensex moved from the lows of 7700
in October 2008 to the level of 20350 just few weeks back and Rupee also moved
from 39 level to 62. The counter argument for the INR critics can be that it
has moved way beyond expected levels impacting CAD but who decides what is
extreme!!!
Blaming FIIs selling?
FIIs have been net
buyers to the extent of $260 mm so far this month. Now this needs little
explanation. FIIs infact sold more than a billion dollar in June and July
individually!
Blaming the FED?
This is a very incorrect excuse. US markets are still near
their life time highs and infact, DJIA
touched all time high on August 2nd which is well after FED first
hinted about scale back on 22nd May 2013. The stimulus by US, for
US, looks to be impacting India and its currency worse than any other emerging
markets. Infact, if not US then China should be much more worried about the
scale back action, again only hinted!
Sensex: What is next
from here?
The strong close of Tuesday and Wednesday became
insignificant after the strong selloff seen on Friday. 1 day of bar has retraced
past 4 days of rally. This indicates that the up move from 18550 to 19390 was
only a minor pullback. The short term support is now at 18300 which is the
level but this time ………….
Banking sector is one
of the worst performing sectors but even if the valuations appear cheap one has
to wait for some stability before getting into value buying and this strategy
has not yielded good returns so far in 2013!
A part of the above article is published in today’s morning Economic Times section of Navbharat Times
by Ashish Kyal, CMT. Also in today’s morning daily research report “The Financial Waves Short term Update” we
have mentioned important levels on Nifty along with the probable Elliott wave counts. For more
information write to us at helpdesk@wavesstrategy.com or call on +91 22 28831358 / +91
9920422202 or visit
Useful for: Trading using technicals, Why is
everyone blaming FED, Rupee, FIIs
Related to: FED, Rupee, INR, USDINR, FIIs,
Sensex, Nifty, Navbharat Times
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