I have no idea why such kind of selling is happening. There is aggressive selling because they know something which we don't. As regards coronavirus (COVID-19), I don't know why the World Health Organisation (WHO) took so long to declare this health scare a pandemic. And being pandemic doesn't change things. That said, the mortality rate outside China is almost negligible. The fatality rate due to this virus is nowhere compared to what happened earlier – during SARS, swine flu.
Given this scenario, the market correction is unprecedented as data points did not suggest this kind of mayhem. The anticipation of a severe economic lockdown because of this virus has triggered a massive correction from the peak, and even the Nifty hit the lower circuit. This is not justifiable. The fear psychosis is at play. I am totally puzzled to see such a steep correction.
In my view, this kind of fall is more technical in nature rather than any sense of fundamentals playing out. Traders are shorting the market, and know that there is no mechanism in place to stop them from doing this. Traders are just building short positions. This is a game which high frequency traders play. None of the countries have stepped in yet to stop this kind of crisis / short sale. But this needs to be done!
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Back in 1996-97 during Asian financial crisis, the Hong Kong government had stepped-in and banned the short selling. Something like that needs to be done across countries now. I feel the government can ban short selling for now, or even close the market for a couple of weeks and once things are back to normal, trading can be resumed.
Amid this all-round panic selling, it is very difficult to predict what the bottom is. If the United States (US), which is over $20 trillion dollar economy, is correcting 10 per cent every day, what can be said about the Indian markets.
Market is down almost 30 per cent and most of the stocks have corrected 40-60 per cent. I think correction in the market is overdone in all the segments. Markets do tend to exaggerate every time, whether it is moving up or coming down. Currently, the valuation is in our favour.
If one is holding stocks, stay put. This is just a passing phase. As far as new investments are concerned, if one has money, deploying now in a staggered manner is a good approach. Once the Nifty claws back above 10,000 mark, things will then start falling into place. Any investor who has surplus money, it's a win-win situation as this opportunity will not come again.
Dharmesh Kant is head of retail research at IndiaNivesh. Views are his own.
(As told to Swati Verma)