The Hindu Business Line : Time to get out or get in?

Worried onlookers watch falling stock prices on the giant screen outside the Bombay Stock Exchange on Friday. Shares fell sharply by another 566.56 points or 3.42 per cent, forcing the 30-share sensitive Index to close below the 16000 mark. —

Jayanta Mallick

Kolkata, March 7

Market condition has forced the leading brokerages and equity strategists to come out with short-term direction calls and tactical advices. Predictably, not all suggestions are alike. The opinions varied between two extremes — reduce probable loss and get out, or enter, this is an opportunity. But some have chosen to tread the middle path with a suggestion of staying put for some more time.

Religare has given a call to its clients to quit the market and stay in cash. Angel Broking’s CMD has suggested that this is the time to build a portfolio, may be for lifetime.

Recession phase

According to Mr Amitabh Chakraborty, President-Equity, Religare: “We have given a broad call for exit as we believe the market is heading for a bottom-out soon. The US has undeniably entered a recession phase. The market so far has not been accepting this. Once you accept it, you are relieved of the burden of uncertainty and use the opportunity to get out,”.

Religare team, he said, advised against averaging in a falling market. It also suggested preference for booking losses in penny and momentum stocks. “Shorting strategies in derivatives could be an option,” he said.

He, however, said that the negatives might not last long. Tentatively April, when the quarterly results and clarity would emerge, could be the time to re-enter. By then, worst should be over, he said.

Mr Gul Teckchandani, an independent market strategist, felt that when many people are talking about a further fall and preparing for exits, serious investors would look for individual opportunities. “The economic fundamentals are intact. There would be values, but one has to be discerning and should have stomach to stay tight amid volatility.” Those who have mid caps might find holding out worth rewarding. But, he disfavoured playing the futures now.

Risk aversion

Mr Thakkar in a recent Angel note said: “I am sure we are near the bottom, but in our market, it is difficult, if not impossible, to predict with 100 per cent accuracy where the market will go in next few days or weeks. But the fundamentals of our market are suggesting an upswing in the near future”.

He felt that for the first time in a long period, the Sensex yield was near the yield of bank deposits — 7 per cent (post-tax). The leveraged positions were also at a minimum, the degree of risk aversion was high and the low volumes at lower prices indicated the bottom was close by.

Durable investors are advised, by Angel to start the process of buying during this correction. “I feel the Sensex at 15,500-16,000 is worth buying, but this does not guarantee immediate appreciation or experiencing the pain of the market going to still lower levels. This may happen; no one can predict the exact bottom or the time of reversal.

“I feel the risk-reward ratio is skewed in favour of the buyer, and that the real risk at these levels is minimal, although the perception in the market may be otherwise. This is one more factor that points towards a bottom formation i.e. the real risk is far less than the perceived risk, exactly the reverse of the feeling we had at the top few weeks ago.”

Short positions

Mr Thakkar recommended traders to stay away from trading for the same reason. “As you would be tempted to go short, and may even be successful on one or two occasions. However, the day the markets reverse, it will not only wipe out all your gains, but also will leave you with short positions in appreciating markets and incite a bearish mindset in you. Hence, wait for the markets to turn and be on the long side.”

Mr R. Swaminathan, Vice President & National Head of Mutual Funds, IDBI Capital, said that the global ramifications, hitting the market like a series of tremors, are the event risks today.

Market is expected to be range-bound and also volatile as there is no clarity on external factors. It is the testing time to the level of patience or the wisdom of the investor. There may be decent returns in the long run as the long-term fundamentals are robust.

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