Experts see further downside from current levels

The markets wiped out earlier gains in the last hour of trade and ended on a weak note. Dismal cues from European markets and sliding US futures can be attributed as reasons for today's fall. The markets closed weak for the sixth day in a row. The Sensex shed 163.42 points or 1.83%, to close at 8,773.78, after hitting an intraday high of 9,236.27 and low of 8,726.80. The 50-share NSE Nifty touched a high/low of 2772.40 and 2617.90 before finishing the session at 2635, down 1.79% or 48.15 points over the previous close.

Is the market headed lower from here?

“The market has got a relatively low margin to go down under — probably around 2,630-2,570 kind of a range,” said Deven Choksey of KR Choksey Securities. “In a worst-case scenario, you would see market taking some amount of support at 2,570 and that’s when buying would once again come in.”

“So the range is very limited. Maybe at every rise, you will find such kind of unwinding or rollover of positions and probably you will find lower-level support buying coming in,” Choksey added.

Nipun Mehta, ED and Head – Private Banking, SG Private Banking India, said, “It is difficult to take a call on what potentially could happen. There could be capitulation based on individual events, possibly triggered by anything like a GM [collapse news] or any specific announcement that is on the cards. It is virtually anything that can happen globally,” adding that, “One could potentially see lower levels, which could be breaching earlier lows, which could be close to about 20% from the current levels.”

Will October lows be tested?

“There is a good possibility that that could happen,” Mehta said. Any possible fall, he added, can be attributed to complete loss of business confidence. “A lot of uncertainties continue to remain, newer facts of potential liquidation of a lot of these larger companies are also coming into the news,” Mehta said.

“It is a situation where any investor wanting to go long is likely to see an erosion in his portfolio in a matter of less than 24 hours — and it is obviously not something that lends a lot of confidence. In a situation where there is almost no buying, or whatever buying is there for absolute short-term or a few days, virtually trading kind of buying, there is a good possibility that you could see a testing of those lows in the shorter-term,” Mehta added.

Choksey, however, said that even as many people feel the market are headed toward October lows, it would not happen unless there is a participation in acute selling from players like FIIs or mutual funds. “Only then will the markets have a sustained fall. Otherwise, the market should have a narrow range and at lower levels, some amount of support buying or short covering-led buying should come in,” he said.

Time to buy or stay in cash?

Metha says even as there are attractive valuations — some companies are closing in on single-digit valuations in terms of price-to-earnings ratio — the visibility of earnings remains a question mark for a lot of industries. “Till there is that certainty or stability as far as the markets are concerned, both in terms of direction of the access to capital and cost of capital or any of the events that one keeps hearing of globally, aggressive buying that one would want to see at these levels is not likely to happen,” he added.

“Very clearly, despite valuations for some of these companies being attractive, you are not likely to see too much of buying really happening,” Mehta said. “I think staying in cash is something that will continue till there is greater stability in the markets.”