With index at 2009-low, growth at 6-year low, Dow at 12-year low & Re at all-time low, it's that sinking feeling once again

The good times will take a good long time coming back, it appears, what with GDP growth at a six-year low, Dow Jones breaking below 7000 (12-year low) and the rupee at record 52 levels.

On Monday, the Sensex shed 285 points to close at the 2009 low of 8607. It has lost over 1,000 points since Pranab Mukherjee rose to present the interim budget two weeks ago.

Experts see a further 1,000 points being sheared off before long. That would mean a breach of the intraday index low of 7697 hit on October 27 is at hand.

Amar Ambani, VP-research, India Infoline, says the markets will remain weak. "Key heavyweight sectors like banking are looking extremely weak in the charts. More scope for a fall from here. Selling pressure is likely to remain."

Foreign institutional investors have been on a selling spree over the past two weeks, and have sold shares to the tune of Rs 3,059 crore — some Rs 580 crore just on Monday, according to provisional figures.

Relentless selling is putting pressure on the rupee, which has dipped below the 51 mark against the dollar for the first time ever.

Experts see the rupee's weakness kick-starting a vicious cycle. Portfolio managers will be forced to sell shares to avoid losses due to the currency's fall, thereby triggering a downward spiral in stock prices, they fear.

Jayesh Shroff, fund manager - equity, SBI Mutual Fund, says, "The continuous depreciation in rupee sees erosion in portfolio without any corresponding fall in stock prices. It makes foreign fund managers vulnerable. We may see more selling pressure."

Raamdeo Agrawal, managing director, Motilal Oswal Securities feels we are in the middle of the global sell-off, which is putting pressure on the stocks.

"Deleveraging is on. They are doing it globally. That's why we are seeing dollar strengthening against all major currencies. Market will remain in limbo, while this is on."

There is also speculation that some managers who have taken long positions in dollar could be selling stocks in the local market to consolidate their positions. Those holding dollars will benefit. Share sales in the local markets leads to increased demand for dollars, thereby buoying the currency.

Apart from the rupee dynamics, experts feel the market will track the global and local macro-economic news in the near term.

"We are driven by the macro situation globally and locally. Individual corporate action or the election announcement does not have too much weightage. There is a lot of stress in the numbers. We need to see a good set of numbers, at least for a couple of months, for the sentiments to improve. Quarter on quarter, March may be better than October, but we have a huge problem of high fiscal deficit and high current account deficit," says SBI MF's Shroff.

Agrawal of Motilal Oswal does not see any respite. He feels the fourth quarter numbers will be far worse than last year and it can be as bad as the third quarter. "Last quarter, we had a good month in October. But this quarter, all three months are going to be bad."

Given this negative environment, even domestic fund managers are not showing any interest in buying. Indeed, in the past two weeks, DIIs have sold shares over Rs 792 crore.

Shroff of SBI MF says he has increased his cash position in his funds. "In the extreme short term, if today's trend (89 point down on Nifty on thin volumes), this could be a break of trend on the downside. We have taken sufficient cash positions. We have higher cash than we would normally have."

With the government's hands tied after the election announcement, experts say there is little for the market in the next three months. Even a rate cut from the RBI is largely priced in. While the street is expecting a 25 bps cut in the repo rate in the immediate future, the announcement of a cut itself will draw the final curtain on all incentives, fiscal and monetary until June. Ambani of India Infoline sees the October lows eventually being broken, if not in the first attempt. "This time it will surely test October lows. October low is a strong support. Even if it does not break downwards this time, it will eventually break this level."

Ambani sees this happening in a week to a month's time. "If that goes, we may see Nifty levels of 2000, which corresponds to 6500-7000 on the Sensex." Agrawal is hoping the October lows will hold. "I don't think the October lows of 7700 on the Sensex will be breached. I hope it isn't."

N Sundaresha Subramanian/ DNA-Daily News & Analysis Source: 3D Syndication