Saturday, June 28, 2008

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Markets Got Butchered! Feeling Some Pain

Lot of bloodbath happened in this week in the Indian stock market in the name of overseas cues and oil spike. The week started with bloodsheds and was becoming positive on account of short covering. But the overseas madness has taken the breath of the bulls.

It was a FnO settlement week. I knew that it will be full of extreme volatility swinging up and down intraday. On the Thursday (FnO settlement happens on the last Thursady of every month), nifty behaved exactly as I had expected. It swung in and out till noon and after 2-2.30pm it decisively went up. But what surprised me most was the fact that it is only the nifty which behaved like this. All midcap and secondline stocks bore the brunt.

Some say the interest rate hike declaration by RBI in the after hours of Wednesday was the reason. But the fact speaks for itself. We should look for facts in the statistical data. From the start of June, FIIs continue to remain net seller almost everyday pulling out 500-1000 crore on the net while DIIs continue to remain net buyers with 200-400 crore on the net.

The DIIs pushed up the markets on the settlement day but FIIs selling offset it. The reason was clear. The rate hike was only 50bps and doesn't affect the industries very much. As markets were already butchered for a straight five days streak with increasing daily range, the rate hike effect was more than enough. So DIIs bought naturally. But FIIs remaining net sellers that too in the last month of the quarter similar to previous quarter indicates they are in bearish in the mode to book long term profits to improve their balance sheets as they have to show their quarter results in the coming weeks.

I expect the markets to become better in the next month as FIIs selling gets subdued and DIIs naturally start buying. But there are possibilities for alternatives if FIIs continue their frenzy to force RBI to further increase the interest rates. Because FIIs selling depreciates the rupee, this has direct impact on the oil imports and hence inflation.

Already imported crisis from US. It seems more bloodshed ahead till the end of the year but I see a mild recovery in the medium term. It that doesn't happen soon panic will settle and great buying opportunities will emerge fromt he bottom.

I felt pain as I took positions at the height of Thursday in midcap stocks as the positive sentiment of Wednesday's closing was followed through to the opening on that day. Many bulls take positions at that time. But being a settlement day I didn't put stop loss expecting the steep recovery by the close. But I was cheated as only Nifty behaved like that and all of my stocks got hammered. Later hell broke loose in the US markets without any apparent strong negative signal and an imminet gap down on Friday took away all my hopes (some cash). Of course this is not a heavy bleeding but 50% portfolio was at risk and 10% of that has (my limit for loss) reached on the downside.

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