Uncertainty here to stay, traders sell on every rise

Mumbai: Bears seem to be having an upper hand in the ongoing proverbial bull-versus-bear tussle. Every attempt by the market to bounce back of late is being thwarted as the fall in Nifty below a crucial level and absence of foreign fund flows into the secondary market have put a lid on gains. Traders are resorting to the sell-on-rise strategy to navigate through the current uncertainty.

The Sensex and Nifty are down nearly 10 per cent from their peaks, and mid- and small-cap shares have fallen more sharply. Incidentally, this was the fall that various value chasers, who were waiting on the sidelines, have been waiting for, but they are now hesitating to jump right in at this juncture.


A string of factors, such as US President Donald Trump’s trade tariff, central banks like the US Federal Reserve tightening rates, worsening macro-economic parameters locally, and domestic political uncertainty arising after the Bharatiya Janata Party’s defeat in recent bypolls in Uttar Pradesh and Bihar, are keeping investors and traders on the edge.

Nifty has gained in only 11 out of the 34 trading sessions since February. But these gains are wiped out within a few sessions. An instance of this was the rebound in the benchmarks of about 1.9 per cent on March 12 — the biggest single-day gain in 17 months. All the gains were gone within a few days. These days, every rise earlier in the trading session is being met with selling mid-way through the day.

Money managers and equity strategists believe that this phenomenon will continue to stay.

“The underlying reasons for uncertainty and weakness are not going to change in a hurry,” said Sanjay Mookim, India equity strategist, Bank of America Merrill Lynch.

“India’s macro has peaked with inflation, current account deficit and fiscal situation worsening. What we are seeing now is the unwinding of the macro,” said Mookim. “These concerns are being accentuated by public sector bank issues, long term capital gains tax on equities and political situation getting uncertain,” he added.

Initial public offerings worth about Rs 15,000 crore scattered across the month and selling before the long term capital gains tax on equity sets in from April 1 have also contributed to the ‘sell on rise’ phenomenon.

Besides the loss in bye-elections, BJP’s key Telugu Desam Party quitting the National Democratic Alliance has also dented political assumptions of the markets. The spotlight will now be on Karnataka elections in May and polls in Chhattisgarh, Rajasthan and Madhya Pradesh thereafter.

Despite the fall, valuations are not cheap either, said analysts. Sensex is trading at 17.4 times one year forward earnings, higher than MSCI Emerging Markets which is at 11.6 times.

“India’s valuations are relatively more expensive and currently global investors seem to prefer other markets like China. FII flows will return meaningfully only when corporate earnings start showing an uptick,” said Pratik Gupta, head-equities at Deutsche Bank India.

“However, even if earnings for the March quarter improve and the market rallies, volatility will return with various state election results and the monsoons are other key drivers,” said Gupta.

Strong domestic flows are still the best defence, which could prevent a steeper correction. But the real test of resilience for domestic inflows is yet to come.

“Usually, in the first phase of correction, more investors buy into the weakness. However if market falls consistently, then we need to see how these domestic flows tend to behave,” said Yogesh Radke, head of alternative and quantitative research at Edelweiss Securities.

DIIs have pumped in close to Rs 1,500 crore in March so far after pouring Rs 17,800 crore into Indian equities the previous month. Foreign investors have bought Indian shares worth Rs 10,246.98 crore in March so far after selling Rs 12,500 crore worth of shares in February but experts said most of this flow has gone into subscribing to the IPOs.

Overall, the enthusiasm to trade this market is subdued.

“People are betting on a rangebound trade. If the Nifty falls below 9,920-9,950 or if Bank Nifty breaks 23,750-24,000, people will fear another round of selling,” said Hemant Nahata, derivatives analyst, IIFL Wealth.