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After a pretty long time I am writing on the Indian capital market. I am compelled to write since I find that this time many investors and my friends are in big dilemma regarding what type of strategy one should adopt to deal with NIFTY levels in the current scenario.This article can be used as a guideline or it can even be cursed since business profits comes under sirk. But I consider that client safety should be the foremost duty before achieving the financial year end targets. I have kept it simple but avoiding the fools traps of valuations and projected valuations here since the situation is intense since Elections are just few days away.

Wrong Short Strategy

There is couple of my observation which would help you to get the possible course of action for the market. We have been expecting that the current NIFTY and Sensex would be poised for a sharp correction and would come to the level of 5200-4800 (in the worst case). Moreover with Indian elections which are nearby should lead to a sharp profit booking as investors would prefer to remain in the side ways. But this thought line is not perfect and is full of disguise which leads to possible losses like one witnessed on 7th March 2014 where short positions were recovered and market went a sharp upward rally.

First of all the market will not get any correction since retail participation is negligible. Now if retail participation is zero then why the market is not falling? The prime reason for the same is that Big Cats of the market are unable to find buyers and we all know that buyers are the retails ones who start buying when the sentiments are made for selling. But this time this game plan in not happening. Major credit goes to the retail investors since they have become more aware and capable enough to know the false traps of the markets. Internet and Smartphone has upgraded the knowledge of the retails investors. Precisely the market is also backed by few index heavy weights otherwise in real sense the Nifty should have come down to 5000 levels. 

Mistakes of Predication

The mistakes which we are doing currently are that we are matching our expectation of the market movement with our previous historical behaviors and that’s the place where the timing is getting wrong. We took that in the Month of March 2014 and with advance tax payments before 15th March 2014 would lead to partial profit booking and hence the market would come down. Taking this call retail investors were asked to create short position in the market which finally lead to devastation.

There are two types of possibilities which are ruling the minds of the market players. If the retail participation remains lackluster then much correction would not happen in the recent phase. Much will ride on the election dates taking the cues from the poll expectations. March historical performance may not happen since this time hardly any retails client is having investments in the market. They have already cleared their position long back and they are mostly on the sidelines of the market with cash piles. For the past 2 years we knew that nothing is expected from the market unless the election happens. Hence that profit booking accounting year closure activities might not turn out to be beneficial for the short positions. In fact the Big Cats made money from the short position games played in the recent week. In between some positive news from the global market would keep the sentiments positive which would further lead to a protection for the market not to come down. Hence don’t fall into the trap of short positions since if you create short positions then the BIG Cats wont sell which increases the MTM and which leads to winding up the short positions and leads sharp rally for the market.

On the other side the valuation of 90% of the NIFTY companies are very attractive but the lack of retail confidence is not giving support and will not till the elections are over. Hence don't get into that trap.

Now after this recent sharp rally of 7th March 2014 ,investors who were  the suffers would remain out of the market game for the next 3 months. This leads to a substantial reduction in the retail participation and also more cautious approach for them.

Now coming back to the possibilities if market don’t correct now then much of the correction would happen after elections since its well clear that for UPA 3 to come will be dream just like building home on Mars. For BJP is would be collation government and people would have less faith on that since whoever comes to form the Indian government lack of majority would be big clinch. Hence I would not be surprised that the market makes great correction after elections. I repeat again here that don’t expect what has happened in the previous two elections.

What and How to Move Strategy

A coalition government would keep the market very much under pressure and under tremendous volatility in the coming days. Retail investors would remain on the sidelines from fresh investments but the trap of short position created more mess and more unpredictability for the markets in the coming days. Remember what we have seen previously may not repeat. Market before or during  elections might come to 7000 NIFTY levels so that retail participation confidence is provoked at the same time  Media would be creating lot of hype for the BJP which will be a trap by the BIG Cats. During elections it would quite easy to manipulate the picture of whom is going to form the government and as major focus would be on majority formation and not coalition, hence any news provoking that segment would create investor confidence and market sentiments. These sentiments would spook the market to 7000 levels and creating trap for the retail participation to buy.

I would be happy to join the race of witnessing the market to correct before election and then a consolidation till the final verdict of the Indian government is out. But the current situation hardly instigates this type of thought line. Hence one should be cautious for investments at these points of time. Short term provocations will be their but not short term opportunities.  The markets have got huge potentiality to fill up the GAP UP open of 2000 points of Sensex on 18th May 2009. This gap is yet to be filled and hence we need to be cautious now. We will see correction but for investments purpose we need to have the correction of NIFTY around 5000 levels so that investments can take real meaning.

Its better to wait on the sideline and let the BIG Cats of the market play.


Published by

Indraneel Sen Gupta
(Vice President-Business Development,Research & Product IFAN Finserv Private Ltd.(SPA Group Company) )
Category Shares & Stock   Report

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