The other shoe falls off

SMARTSHARE

In March earlier this year when the Sensex broke through its January low of 15,332 to touch 14,677, the Nifty managed to stay above the January low of 4,448. This divergence was seen as a negation of the bear market hypothesis and the Nifty rallied 18.5 per cent and the Sensex 20.8 per cent from their March lows.

Both the Sensex and the Nifty have now made new lows in June. The Nifty slumped to 4,369 and the Sensex to 14,645. Both the indices have now made lower tops and lower bottoms, which suggests beyond any doubt that we are in a cyclical bear market.

While there would be the usual quota of doubting Thomases in this market, this event has converted a lot of bulls into bears and given a reason to fundamentals analysts as well to review their persistent bullish calls. This widespread bearishness, aided by the media talk of broken levels has helped the markets bounce back on a contrarian call.

For the markets to now prove the bears wrong, the Nifty will first have to close above the 5,298 mark. But the benchmark will have a tough time even crossing the 4,950 mark; 5,298 is a far cry.

Fundamentally too, the nuts are getting tightened. After experimenting with CRR hikes for a long time, the RBI used its "brahmastra"