Are you fearing a 'Black Monday' revisit?

It was 3rd biggest single day absolute fall for Sensex ever, which was weighed down by extremely weak global cues. The benchmark indices joined their Asian peers losing strength across the board. The sell off was severe in the metals and realty space. The Nifty closed at 4,445 down 174 points, while the Sensex shut shop at 15,234 down 541 points. The close was its worst since the 416.02 points it lost on February 27, 2007.

 

The fall brought back memories of May 2006 when the market's bellwether, the Bombay Stock Exchange's Sensitive Index (Sensex) lost more than 1,800 points. The decline began after May 10, when the market closed with the Sensex at an all-time high of 12,612.

 

On whether this trend will continue Michael Preiss, Associate Director-Investment Advisory Group, HSBC feels that this may continue and perhaps be similar to what was seen in May of last year, when this sort of adjustment period took like 2-3 weeks.

 

Vibhav Kapoor of IL&FS thinks that one should not be too surprised by what has happened today because the market has been running up continuously for several months, particularly in the last two weeks. "We have seen a vertical rise, which normally presages a big fall," he points.

 

The flow of money into emerging markets made people forget that there was a problem developing in the US, particularly in the corporate bond side which means that the liquidity overall is drying up a little bit globally. That obviously had an impact on all the markets whether it's India, China or other emerging markets.

 

Mark Tan Keng Yew,Director of UOB Asset Management on the other hand believes that it is hard to say as to how long this correction is going to last. "It could be like what happened in May and June last year, when it lasted for one to one-and-a-half months or like what happened in March earlier this year when it lasted for about a week. It may drag on for maybe a couple of months"

 

He feels that there is not going to be a prolonged downturn like the Asian financial crisis, because as long as corporate earnings continue to be strong, fundamentals of the economy are still good, investors will continue to like equities, which deliver higher returns, higher asset classes like bonds and cash.

SV Prasad, Chairman at Chime Consulting however has a note of caution. If the results of the corporate are not inline with expectations of the analysts and if the weakness in the markets abroad continues, the markets here would be in tandem but if the results are better than what the analysts expect then of course things will look better, he adds.