INSUBCONTINENT EXCLUSIVE:
The domestic equity market experienced a massive decline during the week gone by in line with its global peers
Panic guided the bourses and the entire world was blaming the coronavirus for the erosion of wealth.
But when one looks back in time,
several instances point to an entirely different scenario
A century ago in 1918, an epidemic of a similar grade Spanish flu created a deadly turmoil in the US, taking lives of 20-50 million people
and affecting around one-third of the planet’s population.
But despite this pandemic being the deadliest in history, Dow Jones Index
steadily rose throughout the year from 76 to 81
Isn’t that surprising? Actually not, because right before the outbreak, the US Index had heavily corrected because of the catastrophic
impact of the World War I
As valuations were already reasonable, there was little room for the market to correct further, which was exactly why despite the flu
markets went up.
Cut to now, India is following a similar yet opposite situation, and an analogy can be drawn from the past
The Indian market has been trading at higher valuations and, hence, a correction was needed to align it as per the mean reversion theory
Hence, this week’s fall is a valuation play with coronavirus as the scapegoat.
The frothy valuations needed the market to correct and,
hence, investors should slowly and steadily pick reasonably valued quality stocks through the SIP route.
Event of the WeekThis week’s fall
in the market can be attributed to FIIs, who have been aggressively removing flows out of the country
On the contrary, the surprising fact was that DIIs were net buyers this week till Thursday.
While coronavirus has managed to propel FIIs to
pull the trigger, gold, the safest asset class, is on a journey to make new highs
This possibly signals that globally investors have taken a back seat to try their hands in such a volatile market.
Technical OutlookAfter
two weeks of indecisive movement, Nifty formed a Big Bearish Candle caused by negative global sentiments on account of coronavirus
On the weekly charts, Nifty and Bank Nifty were still trading in an upward sloping channel
On the monthly charts, this fall seemed like a mean reversion opportunity for investors, who have a long-term view
Short-term traders should remain on the sidelines as VIX is ruling extremely high
Nifty’s next immediate support level is at 11,100.
Expectation for the WeekIn the forthcoming week, all eyes would be glued on the most
awaited SBI Cards IPO and RITES OFS by the Government of India
No matter what the outcome is, markets would broadly be driven by the virus and global sentiment
While it would be impossible as well as futile to predict the pangs of the market, it will be wise to rely on the wisdom of Sir John
Templeton during this bloodbath: ‘The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time
to sell.’
Hence, investors should cherry-pick quality stocks in a staggered manner as every dip seems to be a good buying opportunity
Nifty closed the week at 11,201, down 7.3 per cent.
