The bulls say enough is enough, value has emerged again; the bears say not yet, the Sensex could lose another 10-15 per cent effortlessly from here, short covering pullbacks notwithstanding. As this debate rages, leading to the kind of two way movement we saw yesterday, it's pertinent to note that a large number of stocks in the market are already trading at levels that correspond to a Sensex of 12,000. Seems unbelievable but it's true.
The Sensex hit 12,000 in April, 2006. Nearly half of the Sensex stocks are trading at below price levels they were at that time.
Stocks in IT, cement, pharma, autos and FMCG are at those levels almost without exception . The index is only standing at 16,000 thanks to stocks like Reliance, SBI, Bharti, L&T and HDFC. One peek at the midcap universe will tell you that the same is true for so many of them, all languishing at Sensex 12,000 levels or much lower. Sugar stocks are 50 per cent lower than those days.
Big names like Hindustan construction and India Cement, trading favourites like SRF and Hindustan Motors, PSU banks Canara Bank and Corporation Bank and real estate proxies like Bata and Bombay Dyeing are all well below April 2006 levels. There are many more. Now this may not necessarily mean much, yet it simply illustrates the extent to which stock prices have got hammered.
The index by virtue of having some outperforming heavyweights may not reflect the reality of the broader market, which is the reason why it may not always be prudent to wait for certain Sensex levels in order to commence buying. Many stocks are already there.
It was good to see some buying finally emerging in yesterday's session. There must have been some institutional buying in stocks like Bharti, SBI, Cairn, Tata Steel which triggered off a wave of short covering. In fact, short covering will be a recurring theme in the kind of market we are in. Given the low sentiment, markets are likely to be in an oversold state most of the time and periodically there will be profit taking or some good news induced squaring off.
Now whether this current bout stops at 4,900 or 5,000 or higher is difficult to fathom. We are down nearly 25 percent year to date, so 6 to 8 per cent short covering rallies are really par for the course.
(Udayan Mukherjee is an Executive Editor, CNBC-TV18)