Cracks have opened up in the last couple of days. From a fairly range-bound situation, the Nifty has slumped below 6,000--the lower end of the trading range. A nearly 1,000 point fall for the Sensex in just two sessions must qualify as a selloff. Ironically, the slump began the day our biggest IPO opened for subscription. The immediate causes for this fall lie in a combination of global weakness and diversion of local liquidity into the primary market.
Globally, things have taken a distinct turn for the worse. Even as news from the US continues to be terrible, expectations from the Fed are mounting with every passing day, making it very difficult for them to deliver any positive surprise. This robs the market of a potential trigger.
<b1>The yen's swift move to 106 to a dollar could also be indicating that global investors have been taken aback by the swiftness with which conditions have deteriorated in the US. There is an element of panic out there.
India has been a clear outperformer in 2008. While markets like Hong Kong, South Korea, Japan and Singapore are down 11-13 per cent year to date, India has lost only 2 per cent. The strength of local sentiment and participation has kept us going.
It will be interesting to see whether we play catch-up now or maintain our head above the others in the pack. Just for the moment, the market appears a bit oversold, so there may well be a pullback. However, very early in 2008 we may be seeing a trailer of what lies ahead this year.
There may be heavy waters to wade through; the sooner investors shed their complacency and get real, the better for them. This may not be the big sell-off but it is a warning that reminds us of the global realities and the excesses that have been building up here in many sectors.