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  • Jimeet Modi

    CEO, Samco Securities & StockNote
    The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

Market correction after the big spurt is normal; there is no need to worry

Nifty50 correcting to 11,000-11,100 levels should be considered normal, says Jimeet Modi.

Last Updated: Oct 05, 2019, 11.59 AM IST|Original: Oct 05, 2019, 10.06 AM IST
D-Street not budgeting for big bang news
The Nifty's implied volatility (as on Wednesday) is the lowest ever before a Union Budget, said Yogesh Radke, head of alternative and quantitative research at Edelweiss.
Mr Market dried up in the last days of the week gone by; hand in hand with the global bourses, which cracked 2-3 per cent this week. The bulls are trying hard to get their mojo back with vigour, as the government goes all out to turn around the economy as RBI acts as a catalyst for such as turnaround. This market downturn is a usual correction of the rally witnessed following corporate tax cut. As such, Nifty50 correcting to 11,000-11,100 levels should be considered normal.

For the first time, the market has witnessed a frenzy in the IPO segment: while the IRCTC issue was oversubscribed around 112 times, the retail portion saw 15 times oversubscription.

This means retailers are still not convinced about the future prospects of the economy. Nonetheless, this indicates that a bigger bull market is ahead of us, because unless retail investors turn super bullish, a top cannot be formed.

The government machinery is working overnight to raise funds to finance growth, which seems quite logical given the hit it has taken from the corporate tax cut. BPCL, which is known as one of the crown jewels of the government, is up for grabs. A decade ago, IBP with a large chain of petrol pumps was divested for double the amount than the prevailing price by the government.

And as Mark Twain has said, “History doesn’t repeat itself, but it often rhymes.” Markets are trying to draw a similar analogy that BPCL would also command a hefty premium. Therefore, we are seeing stock price surge relentlessly.

Event of the week
The YES Bank and ZEE Entertainment sagas still continue to unfold, where promoters’ pledged shares are being sold off by lenders in the open market. This has created a great buying opportunity for risk takers.

Fortis Healthcare’s lenders too invoked and sold massive pledged shares, but since the underlying business is quite decent, buyers came in at Rs 110-115 and the price reverted to normal valuation at around Rs 140. Risk takers out there may consider buying ZEE Entertainment selectively in smaller quantities in a staggered manner with the understanding that it can still go down further, but eventually revert to mean over the medium term.

Technical Outlook
Nifty50 moved lower near its 50-60 per cent retracement levels, which should act as good consolidation levels. After a sharp rally of 1,000 points, a swift correction is but natural. However, timewise correction might last a little longer and can test the patience of the bulls in the short term. ‘Buying on dips’ those stocks which are trading above their 200 EMAs would now be a safer strategy for traders.

Expectation for the week
The broader market, including the local bourses, will await Fed’s policy decision, which will set the tone for the markets for next few weeks, depending majorly on the Fed Chair’s comments and rate reduction, if any.

Back home, vibrancy is slowly getting visible at ground level in terms of some pickup retail sales of consumer durables and automobiles. Auto numbers improved slightly in September on a month-on-month basis, they continue to be ugly on a year-on-year basis. As the government is going to announce a voluntary vehicle scrappage policy any time this month, the auto sector can witness stability in stock prices going ahead.

Investors should accumulate quality stocks selectively at lower levels. Nifty50 closed 2.93 per cent down for the week at 11,174.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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