There was blood on the street yesterday. The first signs of retail panic were visible as the Nifty sliced through critical supports. There was relentless delivery-based selling in frontline stocks like Reliance, NTPC, ICICI Bank and Sterlite, and shorts were seen piling up in several key stock futures. It is that vicious cycle of bears getting active on the back of heavy institutional selling.
Retail has been the bulwark of this market for the last three months. Here comes the test of conviction. The first signs are ominous. The way sugar stocks tanked 15-20 per cent on Thursday, the way names like IFCI, Ispat, IDBI, Hind Motors went for a free fall betrays a growing sense of panic among domestic investors. This despite the fact that other markets in Asia have been recovering and closing in the green for two consecutive days. India is the world's worst performing market in the last 48 hours. After months of complacency, a scare is setting in and, quite frankly, about time too. Too many things were smacking of madness out there and this scare was sorely needed, if only to restore some sanity to the market.
The billion dollar question is whether the time to buy has come again. It is tempting to say yes, but maybe it is prudent to be a little less aggressive just yet. After all, retail has had a great party and hangovers do not always get over with the first whiff of coffee. It is important not to take rash trading decisions at this juncture, particularly in sectors that have froth in them. Price may have been the only guiding light these last few months, but the reversion to fundamental sanity is happening now, as it always does. The good thing is that almost everything falls in a market meltdown, so use these dips to accumulate the strong sectors with good earnings visibility now that valuations are less stratospheric.
We are still in a bull market, this is a sorely needed purging of euphoria. Speaking of which, do turn up for the Mumbai marathon on Sunday; it may help you focus on the longer journey ahead.