Wait and watch, the best mantra

Though worst is behind us, long-lasting uptrend unlikely to happen in immediate future

"Money makes money, and the money that money makes, makes more money," Mark Twain, a great philosopher writer and a humourist, has written. People invest money in the stock markets to make money. However, most of them seldom succeed in achieving their goal and do certainly lose when the money itself rob them. The Indian money, i.e. the rupee robbed stock market investors a lot when it plunged to an all time new low of Rs 63.03 in intra-day trade on Friday before settling at Rs 62.70, against a dollar.

The latest fall in the value of the rupee in the currency market in absolute term was though not as big as it used to be in the recent past, it sent a greater shock as it occurred despite all the possible measures that the government of India and the Reserve Bank had initiated in the recent weeks. In the process, investors lost confidence in both government and RBI resulting in market crash.

Unfortunately, negative cues from global markets had compounded the woes. The gradual but steady recovery of the US economy caused panic selling not only in India but also the world over on the fears that the foreign institutional investors (FIIs) most of which have their roots in the US will take their money out of the emerging markets including India and invest in their own country. In fact, the FIIs were major sellers of equities on Friday when the trading resumed after a public holiday on the preceding day, and therefore, the cracks in the markets were big and widespread.

Prior to the huge fall on Friday, the markets had been on a decisive path of recovery and the BSE Sensex in the first three trading days had already gained as many as 578 points over its previous week's closing.

The uptrend witnessed in the first three trading days was not restricted only to the main indices and leading stocks, but it was broad-based. It was mainly on account of short-covering by the bear market operators as the prices of equities had gone too much down in too short a period and therefore, looked attractive for covering short positions.

Besides, the various measures announced by the government with an objective of arresting rupee fall also induced confidence in the markets. Also, the rupee, appeared to have stabilized too, but it was only for a while. On Friday, when the markets reopened for trading, the rupee was on a fresh slide and reached an all time low. This caused panic selling by the FIIs which, as an immediate consequence, triggered frantic downpour of sell orders by individual investors and bull market operators alike.

The BSE Sensex which had closed the previous week at 18789, began the new week on a positive note and moved beyond 19,000. It reached the week's highest of 19393 to close at 19368 by Wednesday with a net three day long gain of 578 points. On Friday, the last trading day, the sentiments had completely changed. The markets commenced trading with sell orders and the Sensex opened lower at 19297 and immediately started losing with more negative news in regard to the rupee, the global
markets and NSEL crisis and others, started pouring in. Before the markets closed, the Sensex hit a low of 18560 at which level it was down by over 800 points. The market barometer then closed the week at 18598 with the day's loss of 769, which was termed as the biggest single day one in the last four years.

Since the investors' confidence in the markets and the market's confidence in the government has been shaken due to sharp fall in stock prices and also the rupee, rebuilding of a long lasting uptrend in immediate future appears to be unlikely although the markets have already discounted the worst and have little room on downside.

The BSE Sensex had recently solicited support at 18551 and then rose significantly. This week also, it fell to a low of 18560 and found a support there to close a bit higher than the lowest of the week. It would therefore be very interesting to see whether it breaks below this support point in the new week or not and, therefore, it would be prudent on the part of the investors to just watch it, and do nothing in the markets!