The markets recovered partially on Tuesday, but the undercurrent at Dalal Street remained one of apprehension.
In keeping with the pattern of other Asian markets, the Sensex too pulled back, gaining 169 points or 1.36 per cent to close at 12,624.58 points. The Nifty firmed up by 57points or 1.57 per cent to touch 3690.65 points.
Market experts said the fall had much to with fundamental reasons, and was not entirely due to the RBI's hard decisions on the CRR and repo rate on March 30. They said this kind of a market should be treated with caution.
“The government is very aggressive in fighting inflation. The market will react to it. It is better to be cautious in such situations. The problem is that even sectors like IT, that are insulated from interest rate changes are sensitive to a shift in the rupee-dollar equation,” says Naresh Kothari, head of institutional equities of Edelweiss Securities.
"However, investors can look for some value picks in pharma and FMCG sectors, which are comparatively less affected by interest rate cycles,” he adds.
The derivatives segment of the market too presents a bleak picture. While the Nifty April futures closed at a 34-point discount to the underlying, the number of short positions that were built up on Monday in frontline counters remained uncovered.
“I still maintain a cautious stance on the market. Implied volatility is higher, which indicates bearishness, and the Nifty faced stiff resistance at 3700-levels. Further, there is huge short position built-up in many frontline counters,” says Zeal Mehta, derivative analyst of Emkay Shares.
Meanwhile, analysts say the markets have held above crucial support levels. However, a fresh move upward may not happen in the near future as the markets seem to be in a consolidation phase.
“I think the markets will consolidate in the days to come. The good thing is that the bottom made on March 5 has not yet been broken. The Sensex has support at 12415 and Nifty around 3576,” says Prem Daga, a technical analyst.