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Weak corporate results and political tension on the domestic front reinforced bearish sentiments on D-Street, notes Devangshu Datta
The Indian stock market had rallied through the first fortnight of October but it gave back the bulk of its gains in the second half.
Weak corporate results and political tension on the domestic front reinforced bearish sentiments caused by nervousness about possible action by major central banks.
The US Federal Open Market Committee (FOMC) met and that always creates trading triggers.
The current palpitations are about a possible Federal Funds policy rate hike in December.
The FOMC meeting left that possibility on the table though the Fed maintained status quo in rates as expected.
(If you want to be contrarian, consider the possibility that the Fed will wait until the next US President is elected, a year down the line!)
Fears of a hike have led to the usual topsy-turvy assessment of US gross domestic product (GDP) data.
The US economy slowed in Q3 (July-September) to an annualised GDP growth rate of 1.3 per cent, much lower than Q2's 3.9 per cent and also lower than the consensus expectation of 1.6 per cent.
Most traders reckon the weak data are good since that lowers chances of a December hike.
The Bank of Japan (BoJ) has also decided to maintain status quo. The European Central Bank (ECB) is also waiting.
Both the BoJ and the ECB have ongoing quantitative expansions and both currency regions are also on the edge of deflation.
The People's Bank of China has not shown such restraint, cutting rates and reserve ratios for the sixth time this year.
China's economy beat consensus (6.8 per cent) by growing at 6.9 per cent (July-September) though this is lower than that of both last year and the previous two quarters.
However, the central bank is said to be worried about rising bad loans and opinion is also divided on credibility of the data.
In technical terms, the bear market has been "half-confirmed".
The recent highs were just below 8,300 Nifty and therefore, failed to push the index above the 200 Day Moving Average.
This has established a bearish pattern of lower peaks, with the previous set of peaks in the range of 8,500-plus in August.
Now we have to wait and see if the market breaks down to new 52-week lows or range-trades.
The Nifty is trading at a weighted price-earnings (PE) of just above 22x (last four quarters, standalone) according to the National Stock Exchange.
There's a band of strong support between 7,800 and 8,000, which corresponds to a PE band of 21.3-21.8.
The index might range trade between 7,800 and 8,200 perhaps. If it breaks below that band, it is likely to test 52-week lows.
A drop below 7,539 (the 52-week low) would suggest a much steeper correction through 2016.
Photograph: PTI
