Markets likely to fall further

It’s better if investors stay away from making fresh purchases either for speculation or investment

After rallying for two consecutive weeks, the stock markets turned bearish on multiple negative factors. The foremost negative factor that triggered selling was Rs 40,000 crore minimum alternative tax (MAT) demand by the Income Tax Department from the foreign institutional investors (FIIs) after their appeal was quashed.

Following rejection of FII's appeal against MAT, Finance Minister Aurn Jaitley himself made a statement that the FIIs would have to pay the tax anyhow. This prompted a few leading FIIs to indulge into basket selling that punctured a hole into the uptrend. With the prices of forward group shares falling across the board, demand for margin payments by stock brokers from their clients created distress selling in small-cap and mid-cap stocks that were nearly going up every successive day until Thursday last week. The lower net profit churned out by the IT major TCS also played its part, sending the BSE Sensex down by 437 points at 28442.

The markets remained officially closed on Tuesday on account of Dr Ambedkar Jayanti. Prior to that, the markets were upbeat under the influence of the preceding two weeks' consecutive uptrend and therefore, the Sensex opened higher at 28,955 on Monday and scaled to a high of 29072 before closing at 29044 with a gain of 165 points for the day. Even on Wednesday, the markets continued to rise initially and scaled to a further high of 29095 even though the news of the rejection of FIIs’ appeal on MAT appeal was out in the morning. But when the markets were about to close, a few leading FIIs started selling across the board and made the pivotal scrips to fall head-long.

Since the prices of forward group shares fell significantly, the stock brokers demanded additional margin monies from their clients who generally deal in speculative trades, say futures and options, which in turn, caused selling in small and mid-cap issues as most of the speculators generally keep such stocks to be sold in critical times. The markets thus came under heavy pressure and lost the 29000 level on the BSE Sensex in just two days of regaining it. On Friday, the lower net profit number announced by the IT major TCS took a toll on the markets.The BSE Sensex on Friday fell to the week’s lowest of 28404 before closing at 28442 with a weekly loss of 437 points and thereby reversed in short-term trend from bullish to bearish.

Since the trend has turned bearish and no major positive trigger being in sight, the markets could be expected to seek further lows in the new week commencing on Monday. The corporate number season that commenced with weaker numbers from TCS is most likely to remain the same for other IT companies and also industrial companies and therefore, the markets cannot be expected to get a boost from corporates except when the season reaches its peak and the weakness in the numbers is fully discounted.

Politically also, the new week is going to be crucial one as on one hand a massive rally of peasants against the government's proposed land reforms has been orgainised by Congress and other parties and on the other hand, the second part of the Parliament's budget session is to resume this week. It is most likely to be an unruly session this time too, making it difficult for the Modi-led government to get certain crucial economic reforms passed. The news from foreign nations is also not supportive to an uptrend.

The US economic data as announced last week is poor. The Eurozone is on the brink of a collapse as debt ridden Greece is not getting further assistance from rescuer nations and therefore, has no money to pay even to its employees and pensioners. In case, Greece defaults and declared insolvent, then its ouster from the Eurozone is almost certain which would cause huge upheaval in the global currencies and also stock markets.

In view of such uncertainties and shaky ground on which the Indian markets are standing for now, prices of equities cannot be expected to go up generally. The prospective investors are therefore suggested to stay away from making fresh bids either for speculation or investment. Instead, they must devote more time to study the corporate numbers that would be pouring in the days to come and prepare a list of stocks that are worth buying, at opportune time or else, they would remain stranded in scrips that may be worth lesser than the prevailing prices.