Sensex recovery seen as short-term
Though the Indian equity markets staged a recovery on Tuesday tracking strong Asian markets, the pullback is expected to be shortlived, said market experts.
The benchmark index of the Bombay Stock Exchange, the Sensex, regained 282 of the 2,237 points it lost from an all-time high of 14,652.09 points recorded on February 8, 2007. The recovery was largely attributed to buying at lower levels and strong gains in Asian indices.
While Japan's Nikkei gained 1.1 per cent, the MSCI Asia Pacific Index edged up by 1.7 per cent, according to Bloomberg. However, analysts are still apprehensive about the markets.
"The correction is not yet over. Markets will witness some pressure in the near term and remain volatile. However, any dip below 12,500 on the Sensex gives a buying opportunity at good valuations," said Kashyap Pujara, VP of Sushil Finance. Chartists expect the market to test if the low hit on Monday is a strong bottom to start the next move upwards. They said the relief rally of Tuesday, even if carried forward, would find stiff resistance ahead. "The downward gap on the Sensex has not been filled and the bottom not held on to. Hence, the trend is bearish. The market could go down 11200 to 11700 levels before bottoming out. On the way up, the Sensex would face stiff resistance at 13,000," said Prem Daga, a technical analyst.
Investors who take a call based on the assumption that this time around the correction is going to be as brief as in May 2006, could go wrong. During May-June 2006, the Sensex corrected by 30 per cent as commodity prices fell, but recovered from a low of 8,929 recorded on June 14, 2006 in a short while.
While the correction in May last year was triggered by a fall in commodity prices, this time it is a function of global concerns, including fears of an outflow of funds from stock markets after the Bank of Japan increased overnight call rate for the second time in six years to 0.50 per cent.
"This has been a smaller fall when compared with the May crash. However, the duration of this slump, if not depth, could be longer as it is due to structural changes in global finance. There are so many concerns like interest rate worries, including yen carry trade, and a risk aversion factor. Indices could test lower levels," said Mahesh Bhagwat, head equities of Mape Admisi Securities.