It was encouraging to see the market pull back from yet another panic dip in the early part of the session. While this is no guarantee of a firm bottom, it does indicate that investment buying is happening every time stocks dip sharply to levels that represent “value”.
Longer-term investors have started accumulating blue chips and good quality mid-caps. In ordinary circumstances, one would have been tempted to read this as a sign that the bottoming out process has begun. However, given the manic nature of intra-day moves and the unpredictability of local and global news flow, any such inference is fraught with hazard. Investors who are buying in now should belong to that breed who are happy to accumulate even 10 per cent off the possible lows.
Some stress is evident in the mid-cap space. The way real estate stocks cracked yesterday tells you that some of the weaker hands have now started bailing out. The liquidation is happening in over-owned sectors like PSU banks, which had attracted a lot of retail and HNI interest before the correction. The resultant pain is throwing up attractive opportunities in this space.
Speculative money had entered realty stocks around the time a lot of those IPOs were hitting the market; that trade is getting unwound as well. The sugar diehards are throwing in the towel; sugar stocks are plunging back to the lows they bounced from. On any adverse trigger, some of these mid-cap clusters could take more of a pounding. As one man’s poison is another man’s meat, this is already presenting good opportunities for the stronger hands. Many of these stocks are off between 20 per cent and 35 per cent from their recent peaks and may just become even more mouth watering.
We have had 15 per cent to 20 per cent corrections in this bull-run quite a few times. That is hardly surprising. The market has always been able to bounce back fairly swiftly and reclaim highs, even from as debilitating a fall as the one in May 2006. What would be worrying investors this time is the prospect of global and local uncertainties playing out over a longer period of time and extending the corrective phase. Fed on the “buy the dip, ride to new highs” diet, investors now are a restless lot. This time, what may be tested is not just their stomach to digest price corrections but the quality of endurance and patience.
(The writer is Executive Editor, CNBC-TV 18)