Stock Market: Correction or Free-Fall?

One would have expected the market to show some ‘stunts’ owing to the Budget-2019 announced on Friday, but the weakness shown was unthinkable. An acute fall of 793 points (about 2% from the opening) was seen in the BSE-Sensex, the most followed Stock Index of India.

Within just 2 trading sessions over Rupees 5 lakh crores were eroded from the market, leaving most of the investors in a state of flux. PSU banks, realty and auto were the hulking sectors bring down the markets to such lows.

What has changed the sentiments of investors?

• Increase in the minimum public shareholding of listed companies to 35% from 25%.

• Increase in tax for high net worth individuals, hurting several hundreds of funds. This made the FPIs run away with their money from the market. Though the tax (after increased) is still less than the US and China, it is obvious that it would create a sense of panic among the investors.

• Important Asian peers, like Shanghai, Taiwan, Hong Kong and Japan, were all trading in the RED, post the expectations of only feeble US Fed rate cuts due to higher employment.

• Fall of Rupee and rise in the price of crude oil, with a gap opening in the morning, suggested weakness was here to stay.

• Fear among FPIs regarding the growth and performance of companies for the June Quarter, whose results will be declared from this week. Analysts are not expecting good performances from even companies like TCS and Infosys. The auto sector has been weak for a long time now and shows no sign of attenuation. Drought and treacherous rains have been a big concern for the investors of the Rural and Agro-market. Metal and Mining are showing no signs of an uptrend.

• 20% tax on Buybacks. Several IT companies did buybacks in recent past and PSUs were doing the same for financing the Government. But it seems that buybacks are no more as lucrative as they used to be.

My take of the situation:

I feel the Bulls are tired, as aimless running has enervated them completely. There has been a continuous inflow of money from FPIs (Foreign Portfolio Investors) and DMIs (Domestic Portfolio Investors) since the beginning of the year. Firstly, after the Balakot Attacks. Then, again few days prior to the biggest mandate given to BJP, the bulls started their journey. There has been no stopping since then. The economy had hardly seen any kind of amelioration, but the untempered optimism of the investors rode the bulls beyond the fence. With the previously stated factors setting in and discontentment from the budget, the bears seem to have overtaken the bulls in the run. This, to me, is not much of a worry because it had to happen and it is, in fact, good the bubble burst earlier or else the losses would have been more austere.

The quote of the lionized Mr. Buffett is apt for the current scenario of the market.

Most of the technical analysis I had done for a select-few stock will be of no good anymore. The fear among the investor shows that the markets might 'correct' to even 11,400 levels for the Nifty. However, the financials of the companies will remain intact and will not be affected by the event in the short term.

I take it as a blessing as this has given the market a direction as well as a new potential to make money. The ‘good’ stocks will now be available at cheaper prices. With a new analysis of the companies, including the effect of budget, US growth, temporary ‘truce’ in the trade war, oil and currency prices and a few others, I have a selected a few stocks I am going to follow for entry points.

• Can Fin Homes Ltd. – Top buy once a break is seen beyond Rs.369. It has made a cup and handle pattern in the weekly chart and also an upward triangle pattern in the daily charts, both having resistance at that level.

• Tata Consultancy Services (TCS) – potential entries will be created at current levels or further below near Rs. 2160, next support. The company will declare results this week and is expected to show a fall in growth. If it beats street estimates it will again create new all-time high over 2295, else it can fall to 2090.

• Reliance Industries Limited – It is India’s one of the most important companies and has delivered great results in the past. However, the stock looks week currently and might fall below Rs.1230, for if that happens, a good downward move can be expected. If the results for this quarter are not satisfactory, the stock will go down to even as low as 1150, providing better entry points.

• Cochin Shipyard – A mid-cap company that has a huge potential. The budget also had points favourable for its growth. Entry shall be evaluated when it trades at Rs.370. If the downfall reverses there, it can go back to Rs. 405 and beyond.

*Disclaimer: I am also a learning investor and do not persuade anyone for any kind of trade. I am not liable for anyone's loss. I have only shared my opinions and study for the reference of others. Pictures taken from google and personal collection.