The earlier postings suggested from my end to 4500 level, now this article illustrates the possible bottom available to markets to float.
Nifty's immediate downside may be at 4400-4600:Sampriti Cap
The immediate downside for Nifty would probably be 4,400 to 4,600 levels, but it might not necessarily be the final bottom, feels Sandeep Shah, chief executive officer of Sampriti Capital.
When volatility index (VIX) is very high, market tends to see very sharp movements. "We would see 30% corrections," he told CNBC-TV18 in an interview. If you see the 2003-2007 bull market, the 30% correction happened two-three times, driven by global problems. This time, we not only have global problems, but we also have local problems, he said.
A lot of milestones have to be tracked, which will tell whether we are in the final bottom or not. One of that would be the sovereign debt crisis solved, he mentioned.
If the market goes 10%, midcaps should correct 20-30% and even 40% sometimes, Shah pointed out. For example, for a-10 lakh portfolio, one should have hedged the Nifty by selling 30 or 40 lakh, he explained. This bear market is almost a year old now and the bull market corrections don’t last for a year.
This week, gold collapsed which has been the ultimate sign of the risk aversion for the whole world. The Europeans said last week and yesterday that they can’t rule out a Greek default and gold fell.
According to Shah, the situation now had many similarities as well as differences compared it to the 2008 situation. The VIX is the price that one has to pay for options compared to their intrinsic value. In the last phase, after Lehman collapsed, the VIX went above 36 for the first time and even crossed 60. Now, the VIX is once again is above 36.
After the Lehman collapsed, all asset classes like equities and commodities sold-off, which included the base and precious metals like gold. The same situation has been occurring even now, Shah feels. The Europeans have been the biggest suppliers of credit to the emerging markets, but now don’t want to give money to them. Similarly, nobody wants to give money to the Europeans.
Dollar is considered to be the most preferred and convenient for of asset overseas. So, everybody has been holding up their dollars which is why the dollar index is going up. The dollar index has gone up from 73 to 77 levels. In the past, the dollar index went up to 84 levels. Comparatively, this 77 levels rally has been fairly smallish so far, he added.
Here is the edited transcript of his interview.
Q: How do you position yourself now? Would you take a market call or view? Would you buy some stocks and wait for it to work if Nifty gets to 4,600 levels? Would you hide in debt right now and won’t get into stocks? A lot of people have a binary kind of an approach to stock markets now because they don't have a staggered approach. What do you tell this crowd to do today?
A: One has to have needs to ask themselves whether they are a pure long-term investor or trader or nimble and now much pain can they take? Every time the market corrected, we have seen a 10% to 15% bounce backs.
If you had some of the consumption stocks in the bull market, then you made a lot of money. If we get to 4,400-4,600 levels this time, I would still be cautious. I would look to buy defensives only if they have corrected and not otherwise.
On Thursday, the high beta and defensives sold off because there was panic as the rupee rolled like all emerging market currencies. A lot of FIIs wanted to book profits. If it was one of the safest stocks in the market like a Petronet LNG, which has corrected about 15%, it's bounced back.
A trader or investor, willing to take a bit of pain and is able to buy if stocks go lower, should put in a bit of your cash, not more than 50% or maybe 1/3rd. The bounce backs will happen. There would be positive views every time when there will be no bad news and the market will bounce back.
Q: How do you approach these bounce backs? Every now and then you will see pessimism and then a 500 point Nifty rally. If you were lucky enough to buy around 4,700 levels and got to 5,100 levels, our bought stocks went up 10% 12%. Would you sell them and wait for another big decline to come?
A: In that case, sell at least 50% of your holding. In a 10% bounce back, some stocks might have gone up just 4-5%, but a lot of stocks went up 20-30%. If you are willing to buy at lower levels, be willing to trade a little bit of your portfolio and sell a portion of it at higher levels.
If you bought the right stock, there are chances that it might not come down again. It's still worth taking a risk for because there will be opportunities to buy. Markets always say that we will get opportunities. If 2008 happened, 2011 is happening.
Q: What would you suggest the people who have been in fixed incomes like FD, bond fund, FMP, gold ETFs and physical gold for the last one year, trying to stay away from the stock market? What should they do with those asset classes at this point in time?
A: Gold is the most difficult and complex asset because it goes up for all kinds of reasons. It's not like a stock with an EPS or PE. The cost of production of gold is between USD 400-600, but the price could be anything. There is absolutely no correlation with the cost of mining of gold.
As far as gold is concerned, it could correct especially as the world is hoarding up dollars. Bond prices continue to rise, so money has been headed there. As far as gold is concerned, if you have some definitely trade, otherwise hang onto your gold. If it corrects another 20%, you might want to add back to some gold as well because probably we have not seen the worst.
When you know there is a big default and markets freeze all over the world, its time to get rid of your gold and jump into equities. As far as debt is concerned, it is a little easier as you want to reduce a bit of your holdings in debt on every correction.
If you don't have liquid savings, then you may want to sell some of your debt or get rid of your FDs, and start putting some money in equities in a slow basis. Every time, you see a 10% correction, put at least 30%.
