Roller-Coaster Likely To Continue

Over the next fortnight however, the market could be seen bottoming out between 2400-2650 levels.

When it comes to predicting the bottom for the market, opinions vary. While a dealer at a leading institutional brokerage feels that the market is still witnessing the effect of excesses of the Harshad Mehta bull run phase, others expect the market to bottom out between 2400-2600 levels.

Says Vinay Kamat, head (research), J M Shares and Stock Brokers Ltd, The initial support level will be at around 2820, and then the market will further fall to bottom out at around 2600-levels. According to sources at UK-based investment bank Kleinwort Benson, the market could expect a revival once the Sensex touches 2800. ``A fresh view would be taken next week, sources said. There were reports that interest rates in the US fell, which could indicate money coming in through US-based funds, marketmen said. Ashish Goyal of ICICI Asset Management Company feels that when the market dips sharply, stocks are likely to get`mispriced in terms of value.

 

Says Goyal: For instance, the SBI stock fell from Rs 330 to Rs 230 due to purely technical reasons. However, a fall below these levels will make it remarkably cheap and thus attractive for buying.

We feel that at around 2900 levels the market should find its bottom where funds can find purchases attractive.

According to Kamat, by design or by luck, scrips underlying the BSE Sensex were capturing the movement of the entire capital market and also the overall corporate performance. However, with the interoduction of MAT, the relationship was divergent. The estimated corporate growth for the Sensex scrips came down from about 22 per cent to about 15 per cent, Kamat said.

As per the analysis carried out by Kamat and his team, the pre-budget, PE ratio of Sensex scrips was closer to 15 as per the earnings figures for the financial year 1995-96, while the corporate growth for the financial year 1996-97 is estimated to be 22 per cent.

This indicates a PE to growth ratio of 0.7. However, the introduction of MAT, this ratio has jumped to 1 implying the market to be at its peak of valuation. The Sensex has depreciated by more than 10 per cent since then. The growth estimates for the revised Sensex are at 18 per cent and with the current PE ratio of 12.1 to 12.2, the PE to growth ratio works out to 0.67. According to Kamat, this is good enough for generating investment interest.

However, the slowdown in the economy and polictical uncertainty have adversely affected the sentiment in the capital market.

Says Ajit Ambani, BSE broker: The confidence level in the market is down and there are only sellers in the market. The FIIs are also selling. The market is likely to lose another 200 to 300 points and it is difficult to predict the stop to the fall.