Bears going for the kill

Bears seem to be moving in for the kill, aware that the micro as well as macro conditions are in their favour. A low profile market operator — famed for his bearish calls, and known to have made a killing in the past few months — is said to have built significant short positions, convinced that the market is set to breach its July lows shortly. Given the absence of any positive triggers on the horizon, traders with long positions in the derivatives segment do not have any incentive to carry forward their positions. On the macro front, inflation climbed to a fresh 16-year high of 12.63%, raising concerns that interest rates may be hiked further. Globally, the situation is even more gloomy, as experts feel that the worst of the sub-prime crisis is yet to unfold.

Given these factors, market watchers expect another round of sell-off in the next few days. Many brokers feel this bout of selling could be far more painful than the ones seen so far.

On Thursday, the 30-share Sensex plummeted 434.50 points or nearly 3% to close at 14243.73, with sellers targeting banking and real estate shares. The 50-share Nifty shed 131.90 points to close at 4283.85. Dealers attributed the steep fall in real estate and banking shares to the build-up of long positions recently, as many traders felt that the worst for these sectors was over. But with inflation still mounting, it appears that RBI will have to announce further liquidity tightening measures.

“We are likely to see a sideways movement for the next one year at least,” says Edelweiss Capital chairman and managing director Rashesh Shah, adding that the next 3-4 months could be tough.

“There are no positive triggers in sight. Inflation and crude oil prices are still not under control, and corporate earnings are set to plateau over the next couple of quarters,” he added.

Thursday’s decline was not backed by strong volumes. Market watchers say this is an indication that the market may not have bottomed out yet. Traded turnover on both exchanges combined was around Rs 65,000 crore. ICICI Bank, HDFC Bank and State Bank of India were among the worst-performing frontline shares, falling between 5% and 7%. Technology shares too were not spared, despite the fact that the rupee is likely to stay weak against the dollar. TCS, Wipro and Infosys were down between 2% and 3%.

via Economic Times