The Sensex and Nifty, which last week posted their biggest fall since July 2009, showcased a strong rebound on Monday. The BSE Sensex gained 568 points or 2.47 per cent to end at 23,554, its best single-day performance in 13 months, while the Nifty advanced 182 points or 2.6 per cent to close at 7,163.
When Nifty hit a 21-month low of 6,869 on Friday, a number of analysts stuck their necks out to predict a bottom for domestic stock markets.
Fund manager Sandip Sabharwal tweeted, “Nifty Put:Call ratio of 10 strike prices around spot now 0.6. Reflects extremely oversold market. Calling bottom today.”
Nifty Put:Call ratio of 10 strike prices around spot now ~0.6.
Reflects extremely oversold market.
Calling bottom today
— sandip sabharwal (@sandipsabharwal) February 12, 2016
Sanjeev Prasad of Kotak Securities wrote last week, “14.5 time multiple on FY2017 ‘earnings per share’ for the Nifty-50 Index of Rs. 470 will put a ‘floor’ at around 6,800, not too far from current levels.”
Investors who went long in markets last week would have made tons of money today. But should those who missed out feel disappointed?
Absolutely not, experts say, because investing in stock markets is not about timing tops and bottoms. Remember, only a month ago, some analysts had predicted a bottom, when the Nifty hit a low of 7,240 on January 20. The Nifty rallied nearly 400 points to take out 7,600 in February, before a global selloff took markets below January lows.
What’s more, for every analyst who is bullish and believes that a bottom is in place, there are others who continue to remain skeptical.
“Markets were in a bit of an oversold territory so it’s a pullback that we are seeing today,” said Alex Mathews, head of research at Geojit BNP Paribas.
Dr.C.K.Narayan, founder of Growth Avenues, tweeteed, “Stocks with max shorts are the ones with the most gain. To be careful here. Once the short covering is done, these stocks will stall.”
Stocks with max shorts are the ones with the most gain. To be careful here. Once the short covering is done, these stocks will stall.
— Dr.C.K.Narayan (@CK_Narayan) February 15, 2016
There’s also the liquidity perspective. Monday’s rally was entirely driven by domestic institutional investors, who pumped in Rs. 1,987 crore in cash markets today. Foreign investors, who have been selling heavily this year, sold shares worth net Rs. 1,312 crore today.
It is important to note that the Sensex and Nifty are down nearly 10 per cent year-to-date despite buying support from domestic investors.
To sum up, investors should not try to catch the bottom and instead buy quality stocks when valuations become attractive. Though Indian markets have been falling and rising in tandem with global stocks, rebounds could be faster and stronger because the country’s economic fundamentals are in much better shape today.
“One can start nibbling into good quality stocks that have fallen sharply in the recent decline. This could be the end of the hope rally, but certainly not the end of the India story. The wait could be painful, but the move upward could also be sharp,” wrote Ambareesh Baliga in his weekly Reuters column last week.