Another upmove that flattered to deceive, the second this month. All of us want to believe the worst is over, but the ticker simply refuses to oblige. Hopes are raised every time the Nifty pulls back towards the 5,000 mark and then there is despair as it fizzles out. Perhaps there are just too many headwinds at this point for the market to move ahead unfettered.
The biggest trigger for the recent sell-off is inflation. The inflation data and reactions from policy makers have left little room for doubt for the equity market that all hopes of interest rate cuts should be abandoned for the moment. In fact, many economists have begun talking about interest rate hikes, which would be disastrous for the stock market. This problem will linger for the next many weeks and months and could stifle any meaningful equity rally, particularly in rate-sensitive sectors like banking and realty. The other problem is the fear raised by the new ICAI guideline that companies will now be forced to disclose their mark to market losses in the current quarter. This could dent earnings significantly for many companies, or so the market fears. Finally, there is the global situation, which after a resilient stretch, is looking a bit wobbly again.
With this second failed attempt at 5,000, bulls will be very short on confidence. There was clear unwinding of long positions on Monday even as bears pounced on the weakness to open fresh shorts. Any further weakness in global markets this week would raise the odds of a retest of recent lows. The market has clearly not stabilised yet, at best it is churning violently in a 500 point Nifty range. But it has been a month already in this broad range, about time it made a break in either direction. Hopefully, there will not be any ICAI-led earnings disappointments, which forces the market below the lower end of its range. Meanwhile, the prudent strategy remains the same: use panic days to buy into stock price aberrations for investors, with traders not taking large positional trades but sticking to scalping small gains whenever they get any within the extremities of this trading range.