Markets: Method in madness

At current levels, some excesses of the bull market are over

Niraj Bhatt & Amriteshwar Mathur / BS

Just about a month ago, the Sensex was at its all-time high of 12671 points. But since then, it has fallen 28.7 per cent, which makes it a deep correction. By one definition, it will become a bear market if it remains below 20 per cent of its high over at least a two-month period. So, it is still too early to call it a bear market.

When the Sensex hit the 10 per cent circuit filter as it fell on May 22, one reason for the fall was attributed to excessive long positions in the F&O segment. But as the Sensex has fallen below those levels in the past few trading sessions, there is obviously a problem of confidence as long positions would have already been unwound.

At every rise, investors are exiting and new buyers are staying away, so what we are seeing is a problem of confidence. The economy and the industry are still fine, and corporate earnings are not going to be too bad this year either, though growth rates may reduce. At current market levels, some excesses of the bull market are over.

Going forward, expectations of first quarter results and the monsoon will provide some direction. Markets may languish for a while, but there are opportunities now for the long term investor.

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