Cautious! Bears Are Back To Haunt The Markets

Recently, the Indian stock markets behaved like a chameleon – the animal that has an ability to change its color according to the changes in its environment. The stock market too changed its course amid changes in the sentiments. The sweet dish that was served by the finance minister in the form of corporate tax cut to revive the sagging economy has already started to turn sour. All begun on Friday, when the bears got their feet in the door and thereafter, the winds have begun flowing in reverse directions. In subsequent days, the bears clearly dominated the highly volatile and violent markets. Let’s have a look at the factors that have brought chaos back in the markets. Sentiments have been adversely influenced by disappointing economic data from the global markets that indicate that the monster of global slowdown has come back to create its haunting presence. Also market participants were cautious as some macro data on the domestic front as well as a sharp sell-off in the banking stocks that was triggered by the sector’s exposure to troubled real estate/housing finance companies. Despite these negative headlines, there was a rare bulletin which attempted to revive the sentiment on D-street that was - the government has made up its mind to bell the strategic disinvestment cat in its second term as secretaries’ panel cleared sale of entire government stake in BPCL, Shipping Corp, THDC India, NEEPCO and 30 per cent stake in Concor. The market gave it a thumbs up as the divestment would help the government manage its fiscal deficit, especially after it had announced corporate tax cut recently and on the grounds that the panel has recommended complete exit from four companies indicating that the cycle of partial piecemeal divestment are up. On the stock specific front, there were a host of stocks which fell like nine pins. One stock we would like to specifically highlight is Yes Bank as the stock plummeted over 35 per cent in just two trading sessions. This stock has been a pain in the neck for retail investors. Well, this brings up two important questions: firstly, why there is craze amongst investors to buy a falling knife and secondly, why it’s tough to say goodbye to a bad stock? As per human tendency, we are usually tempted to buy cheap stocks and if you don’t believe this then I would request you to check out the recent sales volume registered by India’s top two e-commerce marketplaces which have been running biggest online sale carnival. Individuals apply akin proposition in the stock market as well, which is buy when the stock is trading with a deep discounted price, we are not recommending not to buy stocks, but, we are only guiding you not to get lured by cheap price as it is important to understand why the stock has seen a deep cut in prices and what caused the stock to go down. If your mind says it is worth buying after a due diligence then you may take a bet in stagger manner, but don’t go all chips at once. Secondly, after buying a stock, we are afraid of saying good bye to that stock as we get emotionally attached to it. Moreover, we are afraid of getting out of a stock with losses. In this case, we believe if the rationale doesn’t hold true after making an investment or you find things are changing, it’s better to take a small loss and still be fit enough, both financially and mentally to invest the next day. In the coming days, a lot would depend on Ace of Spade of the market which is the benchmark Bank Nifty as it has been underperforming lately and hence, the bulls are facing difficulty to bounce back. An immediate trigger for the banking index would be the RBI monetary policy decision; well, the consensus on the street is that there would be a rate cut of 25 bps. Now, the big question is will the RBI Governor pull out his ace and surprise the markets by another unconventional rate cut like he did in August? We are of the opinion that this time RBI would do something out of the box. Post the RBI policy meet, corporate results will be the focal point for the D-street.