The Hindu Business Line : Downtrend likely to persist

When it persists, the search begins for an elusive bottom. When the short-term woes spill over to medium term, normally psychology tends to turn bearish. By then, however, significant valuations have been shed and losses have been suffered.

At the end of the first two quarters of this year, the Bombay Stock Exchange’s Senex has wiped out one-third of its value from its peak in January. The quarter to June has seen psychology turn distinctly bearish.

Terminology obviously changed. It is no more a correction in a bull phase. Analysts have their reasons – it is difficult to anchor inflation and interest expectations when crude oil prices are galloping, even though retail petroleum price movements are restrained at home to a great extent.

Very few had forecast early that there would be so much of bloodletting this year. When investment advisors realise their mistakes, they revise targets.

It would not be surprising if institutional investors were to face redemption pressure going ahead as corporate results fail to satisfy market expectations.

Little to cheer

If Dalal Street is getting into an extended bear phase thanks to international crude oil price volatility and uncertain political atmosphere at the local level, psychologically market participants with less than long-term investment horizon have definite cause for worry.

If one were looking at the key indices for the next one quarter, one would find very little to cheer now. The consensus seems to be that there may be false moves in between, but the overall trend is likely to be downward.

This also underlines a presupposition that the opportunities are lurking for the long-term investors, who believe that the rough and tumble of 2008-09 would give way to upside in 2009-10. However, myopia appears to be endemic.

Investment strategists feel that that retail investors with a long-term view can stick to topline stocks, which are well known to them. Fresh entries should be entirely based on homework. Index funds are best worth trying in this kind of difficult time. Strategists also suggest staying away from auto, real estate and banking stocks.

Despite advises to the contrary, very few are likely to attempt to try catching a falling knife. This week the market is likely to follow the continuing downward trend. The institutional investors are unlikely to buy into a market, which has caught onto a downward momentum.

Interestingly, in the short-term the market is factoring in less aggressively the stock specific positive news than before as lack of confidence dominates the investment sentiment. Even the good news such as decent progress of monsoon has had a limited impact on the market psychology so far.

Everyone wants to see the bottom, even if it is on a rear view mirror.

(Responses may be sent to jayanta_mallick@thehindu.co.in)