This time as October kicks in, the mood is jittery as the continued sell-off in the US market, higher interest rates and strengthening dollar are keeping investors on the edge. What is adding to the nervousness is growing speculation about stresses at European banks including Credit Suisse whose share price has collapsed in recent months.
Since 2002, the Sensex and Nifty have declined seven times in October. They have gained in 13 out of the 20 years. The highest gain in this month has been 17.5% in October 2007- the peak of the 2004-2007 bull run. The biggest loss in October in the past 20 years was 26.4% in 2008 – soon after the collapse of the Lehman Brothers that had worsened the global financial crisis.
Money managers and analysts said the current mix of an unfavourable economic outlook and risk-off sentiment could lead to markets being under pressure this October. The Nifty in the next four weeks could fall as much as over 6% from Friday’s closing of 17,094.35. While the market bounced nearly 2% on Friday following a ‘not-so-hawkish’ policy decision by the Reserve Bank of India (RBI), helping cut some of the recent losses, the sentiment in the global market is not favourable, said analysts.
Sriram Velayudhan, vice-president-alternative research at
sees a ‘medium-to-high’ probability of the Nifty testing 16,300 levels immediately. “From a technical point of view, we will regard Friday’s price action as a relief rally and expect it to be short-lived,” said Velayudhan. “Short aggression was evident from roll cost suppression during expiry week when positions were getting rolled into October series.”
On Friday, US markets ended about 0.6-0.7% after consumer spending data in September showed an increase. This indicator is tracked by the US Federal Reserve. Elsewhere, Credit Suisse Group AG’s chief executive Ulrich Koerner told its employees the bank is at a “critical moment” as it restructures its operations, according to Bloomberg. Koerner urged the firm’s staff not to confuse the “day-to-day” stock price performance with the Swiss firm’s “strong capital base and liquidity position”.
Policy decisions by the European Central Bank and Bank of Japan, data on India’s current account deficit, beginning of second quarter corporate earnings as well as the crucial jobs and GDP data from the US will keep investors busy over the next few days. “The next two months are going to be very tricky purely because the US Fed is following a certain path to control inflation,” said Vaibhav Sanghavi, Co-CEO, Avendus Alternate Strategies. “Also because of the quarterly earnings and corporate commentary that will follow, we may find two things — either companies downgrading their guidance or forecasts, or analysts trimming their earnings forecasts. All of these could result in more turbulence over the next one-two-months.”
Overseas funds have been cutting riskier bets in favour of safe-haven securities such as the US dollar. This saw the Indian equity markets tank to two-month lows — despite a strong start to September — and the Indian rupee fell to its all-time low of 82.02 against the greenback.
Foreign investors net sold to the tune of 1,565.31 crore on Friday for the eighth straight session, taking their outflow tally in this period to 20,500 crore.
“We are advising clients to protect their portfolios through put-spreads on index options and gradually going long on large-cap IT stocks and hedge it by going short Nifty futures,” said Velayudhan.