BEARISH VIEWS FLOWING....

ONE MORE ARTICLE TO SUPPORT MY EARLIER PUBLISHED VIEW OF BOTTOM SUPPORT AT 4500 LEVEL. bUT THE DIRECT FALL TO IS NOT ON THE CARDS....

MARKETS LOST GROUND ESPECIALLY ON THE GLOBAL TURMOIL, NOW CRIPPLED BY DOMESTIC EVENTS...SBI DOWNGRADE ......MORE TO FOLLOW ON  BANKING ISSUES....AFTER 2G..MINING..LAND SCAMS......INFLATION....

Exhausted already? Bad news! Market can take out 8-10% more

Published on Tue, Oct 04, 2011 at 18:08 |  Source : CNBC-TV18

Updated at Tue, Oct 04, 2011 at 22:40  

Moneycontrol Bureau

It was a sea of red on Dalal Street as investors were left shell-shocked by a Moody’s downgrade of the nation's numero uno lender, State Bank of India .

Moody's cut SBI's ratings from C minus to D plus and said that the bank's tier-I equity cannot support its growth and rising rates.

SBI, however, is not unduly worried.

The PSU major's March disclosure is still haunting the bank, believes Mehraboon Irani, principal and head of private client group business at Nirmal Bang Securities. The profit after tax (PAT) had tumbled a whopping 99% Y-o-Y to a meager Rs 20.8 crore.

Also, Irani said, people have started to ask questions about SBI’s proposed rights issue. "Even if they [SBI] come out with a rights issue at a near date, the fact is that SBI will need to absorb the higher credit cost for the growing NPAs. Now, NPAs were already around 3.2% as of the last quarter. I think everything is not easy as far as the bank is concerned," he said.

According to Irani, even at the present price, SBI still has negatives around. “I am still resisting from giving a “buy” recommendation at the present level,” he said.

It is a wake up call for Indian public sector undertakings — the way they have been managed, feels Sudip Bandyopadhyay of Destimoney Securities. “Everybody knew that the bank needs tier-I capital and the government was dilly-dallying. In the midst of it, Moody’s came and cut the rating. It is unfortunate. SBI will find it pretty difficult. Its cost of borrowing will go up in the international market. And considering they have significant overseas operations, it is unfortunate. However, one word of caution is that we should not read too much into these rating agencies figures their credibility is also a suspect,” he said.

In this backdrop of downgrades and global uncertainty, the Nifty plummeted 100 points but recovered to close at 4,772 down 77 points, while the Sensex lost 286 points to close at 15,864. The index has shed over 800 points in three days.

The obvious questions on investors’ minds right now would be: Are the current valuations attractive and how much more fall can one expect in the markets? Also, is the fall a good time for investors to get in and buy more?

Well, markets can certain fall further from current levels, said technical analyst Abhijit Paul, AVP at Brics Securities Limited. “I think that we can definitely drift below the previous low of 4700 on the Niftyfuture,” he stated adding, “I sense that equities are likely to drift further down to the tune of 8-10% from hereon.”

He advised holding on to, the Nifty future on the downside, closer to that 4430-4480 range, where there is a meaningful confluence of supports.

But the problem, according to Irani, is that nobody wants to buy because people know that they are surrounded by poor macros, globally and locally.

"Valuations across the board can become more and more attractive as we go ahead over the next one to three months," he believed.

For investors to seriously start looking at the market, we need to see a more sustainable rally, explained Anil Manghnani of Modern Shares & Stock Brokers.

"You are not getting sustained shorts, where you create enough shorts in the system after which you will have a nice pullback rallies. I want to see that discount become bigger. I would like to see 4720 break. I am not trying to be negative. All I am trying to say is it will call for the next better rally, more sustainable rally," Manghnani said.

Sagar Salvi
sagar.salvi@network18online.com THANKS TO AUTHOR AND CNBC