Short-Term Is Still Bearish

Buying interest hovers around old economy stocks

Market Wrap: This turned out to be a defining week for the market. As fears of a bad monsoon were confirmed and US indices continued to plunge sharply, gloom was the prevailing sentiment. The Sensex plunged 6.37 per cent closing at 324.35 points. The Nifty dropped below the 1,000 mark, closing at 973.50 points for a 6.02 per cent loss.

Breadth indicators were bearish with advances far outnumbered by declines. Volumes spiralled higher in near-panic conditions as selling pressure intensified. The Put-Call ratio was affected by settlement considerations, but it shot up to 66 before a decline.

Outlook: As things stand, the next Sensex support is 3,050 and if that is broken, we are likely to see a plunge to 2,980 levels at least. We may then see a bottom forming after a selling climax. This would be suggested if abnormally high volumes coincided with the sales. A selling climax is a move that drives out bears and leads to a bottom because supply is no longer there.

The danger signals lie in what has happened in the US markets. For the past few years, the Nasdaq has been a lead indicator for Indian stocks, with a strong correlation to the Nifty and Sensex. The Nasdaq broke its September 2001 levels this week and it is possible that the Indian market indices will follow and test the eight-years lows witnessed at the time. In that case, we could see a drop all the way until Sensex 2,600.

It is easy to suggest that the short-term, intermediate and long-term trends are all bearish. his bearish move only started a fortnight ago at a temporary top of 3,367 could continue until mid-October.

We would need a "dead-cat bounce" to close above the 3,255 level, any hope flickers of a turnaround in even the short and intermediate time-frames. A rise past 3,320 would suggest a miraculous revival of the long-term trend. But it is actually not right to state categorically that the long-term trend has turned bearish. That would only be confirmed if the next market bottom went below 2,600.

Bulls & Bears: There are signs that old economy sectors like pharma, paper and select old economy firms like ABB, Bhel, ACC, Ashok Leyland, Arvind Mills, GE Shipping are finding buyers at current levels. The cut in rates will benefit those banks which have stronger balance-sheets HDFC bank is an obvious beneficiary.

Hotel stocks like EIH and Indian Hotels are attracting value investment. Even some IT stocks such as Mastek, Infosys and CMC seem to have ridden out the worst of the storm. Glaxo and Parke-Pfizer are doing well. Satyam seems to have received the approval of people who looked at the US GAAP results and ignored the Indian GAAP. Further losses or ranged trading between 3,050-3,255 still seem the likeliest outcomes of next week