And, the bearishness returns: Experts wary of road ahead

Moneycontrol Bureau

The Indian equity market ended on a resilient note amidst sharp sell offs in global equities. However, India's performance compared to its peers was much better today. The world markets crashed post dismal report on US job growth and euro debt worries.

The Nifty closed above 5,000 down only 20 points, while the 30-share BSE Sensex closed 108 points lower at 16,713 after seeing a recovery of over 100 points from the day's low of 16,561.46. (Catch all the market action HERE )

Despite the outperformance, the pain in the Indian market is far from over, says Ajit Dayal, director of Quantum Asset Management Company. "Foreign investor on the back of fears of what is happening in the US and European markets either push capital towards India and in other emerging markets or withdraw it. And, that causes significant sharp movements here. Therefore, this uncertainty that we live with in India will continue because we rely on foreign capital to re-price the Indian stock market on a daily, minute-by-minute, basis," he explains.

In fact, there are fears of the BSE Sensex collapsing 30-40% within a month if there are sovereign defaults or higher risk aversion in the world. "People will take money out if FIIs, who have already sold USD 2.5 billion worth of shares in the month of August, sell USD 5-6-7 billion worth of shares in any given month. That will see a massive write down of the Indian stock market and you will be back to where you were three years ago," Dayal cautions adding that 4,800 on Nifty may be a near-term technical call in some sense but you can break through those numbers very quickly on the downside if foreign money goes out.

However, he was quick to add that if money flows in as sharply as it did in August 2010 (after the Jackson Hole meet when Ben Bernanke signalled QE2) when we had USD 6 billion come into India in three weeks taking the Indian stock market from 16,000 in August 2010 all the way to 21,000 by November 2010, and banks, world over, start printing money then the Indian market would surge again very quickly.

Rahul Mohindar of viratechindia.com, on the other hand, believes that till the Nifty hold on to 4,900 levels with the IT index at 5,200 and the Bank Nifty at 9,300, there is no reason to panic and expect new lows immediately. "I think it’s only once these break should one get into that kind of a mode," he adds.

Sudip Bandyopadhyay, managing director and chief executive officer of Destimoney Securities too sees a dull market going forward.  He doesn’t see it moving above 5,100 or 5,200. “That can only happen if the RBI doesn’t go ahead and increase rates further. Somewhere the economy has started suffering because of these interest rate hikes. The economic growth is slowing down and we really haven’t seen any significant impact on the inflation consequent upon these rate hikes over the last 18 months,” he explains.

So if the RBI pauses, the market will look upon it very positively and we may see 5200, else it will keep languishing in and around this 5,000 level this month unless there is some major positive global news coming in, according to Bandyopadhyay.