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Market watch | Buying opportunity

Investors won’t be feeling too happy this Monday morning. This whole P-Note business and the gut wrenching volatility of last week would have left a bad taste in the mouth anyway, writes Udayan Mukherjee.

business Updated: Oct 21, 2007 22:50 IST

Investors won’t be feeling too happy this Monday morning. This whole P-Note business and the gut wrenching volatility of last week would have left a bad taste in the mouth anyway. To compound the agony, the US markets crashed on Friday raising fears of a global correction. As they say, it never rains but pours. In their 19,000-induced anxiety, regulators may have forgotten that stock markets have in-built self-correcting mechanisms that are far more efficient than any regulatory body. Maybe a global correction would have happened anyway to cool down the dizzying pace of this rally. We may not have needed this P-Note clamp.

What’s done is done. There are two ways of approaching the market from here on. One is to lament this forced correction and worry about a much deeper cut from here on. It could happen too. The better way to approach it is to realise that the market has, yet again, provided you a wonderful buying opportunity. This will be the third such opportunity this year and reiterates the now familiar pattern of this market.

In a sense, it has been the kindest of bull runs. It shoots up and just when investors feel it has run away from them, it benevolently turns back to give you another chance. The problem with investors is that they feel bullish when the markets go up, swear that they will buy the next dip and then turn even more bearish when the correction comes. This is not to say that the correction is over. Can the Sensex go back to 16,000 or even 15,000? Sure, it could, anything can happen in a market. Could we go through a patch of few months where gains are hard to come by? Possible. None of this would change the course of this bull market. Worriers will always worry; they will always find reasons to not buy. You want to be focussed on the end game. The end game, I think, lays much further up for India and most emerging markets. Once you share this conviction, these falls are all buying opportunities. They are bad for the trader, good for the investor.

Many stocks have already corrected significantly and if they fall some more this week, they would approach interesting levels. In the index, stocks like SBI, Bharti, Sail, Unitech, Bhel, ICICI have corrected 12 to 15 per cent since October 16. ACC is down 22 per cent, Reliance Energy 30 per cent. If they fall more this week, which is likely, you would be getting blue chips 20 to 25 per cent off recent peaks. Outside the index the fall is sharper.

Financials like Reliance Capital, Bank of India, Union bank, IDBI have fallen 20 to 25 per cent. There are several others like Sesa Goa, JP Associates, Kotak Mahindra, GMR, which are down 18 to 20 per cent. This is not to say they will not correct more but simply to point out that material erosions have happened already, a bit lower and the accumulation zone starts for the patient investor. The rise has been sharp; the fall could be sharp too. Yet, as they say, in every adversity there is opportunity. This is the postman ringing again. Better collect your parcel this time.

(The writer is Executive Editor, CNBC-TV 18)