2-day fall 7th highest since ’03

The two-day fall in benchmark indices has sent jitters among several market participants. The current fall is the biggest one after the crash in May this year. The 572-point fall in Sensex is the seventh highest, in terms of points, since the beginning of the bull run in April 2003. And in percentage terms, the fall is 4.1%. There have been 20 bigger falls than the latest Sensex crash.

The biggest continuous fall was five-day long. But, it may be extended further after a brief pullback, which may last only for one trading session. Usually, this pullback will be very weak. There have been five such five-day continuous falls since April 2003.

The biggest such fall shaved off 17.2% from the Sensex. This happened in May 2004 when the ruling party was toppled and the Congress-led UPA took control at the Centre.

Big falls occur when there are key concerns such as ripe valuations and political hurdles. RBI’s decision to raise the cash reserve ratio of banks may have been the key trigger for the latest fall. At roughly 17 times the one-year forward earnings, domestic equities are among the most expensive in emerging markets.

This is the only major correction in December since the beginning of the bull run. December has always been a month where markets have ended on a positive note. Historical data shows that Sensex has ended in the negative territory only 5 times in the previous 27 years.

FIIs have been at the centre of every major market correction. In the previous few market sessions, FIIs have sold around Rs 2,000 crore of stocks, both in the cash and futures & options segment. Normally, indices pull back at least one-third of their losses. Market watchers feel there is lot of money waiting on the sidelines, so this correction could turn out to be a short-lived one.

Lalit Thakkar, director, Angel Broking, says, “We are not seeing it as a significant correction like the one witnessed in May this year. What happened in May was a global correction and that is why the recovery was slower.”

Technical chartist Vijay Bhambwani feels, “Indices are exhibiting a “long pole” formation on intra-day charts as the steep fall resembles a pole due to the vertical fall of nearly 3%. While the 3913-point support in Nifty advocated for Monday’s session did not hold, the bearish pressure was significant and seems to be placing the extremely short-term oscillators in the near oversold zone. That indicates a short pull-back rally, though the same can terminate without a warning and therefore maybe very treacherous to trade.”