Indian Stock Markets : Time for Bottom Hunting!!!

09:20 a.m.- Asian markets have started of with deep cuts taking cues from Europe and US markets, however trading off their lows. MSCI Asia Pacific Index is about 3% down. Nikkei down 4.6%, Hangseng down 4.2% and STI down 1.7%. Royal Bank of Australia has cut the interest rates by 100 bps to 4.25%. is in recession and the present declaration has just caused a knee jerk reaction. Now, the markets will stabilise and will be just looking for signs of recovery and how long it will last. Indian markets may do a somersault today towards the later half or may be tomorrow, wait and see.

New Series for December started on a buoyant note. Sensex opened with a wide gap up at 9163 against a nominal gap up opening expected by me. Despite an unexpected high opening, stocks galloped higher in thin volumes to hit a high of 9327 against my predicted 9323. Thereafter, the markets remained range-bound till early afternoon when one way selling commenced taking the sensex deeper to 8803 and closing at 8840. Volumes were absolutely low, perhaps the lowest in the recent times just 43457 Crores. Market depth remained just negative with AD ratio at 4:5. FII's and DII's were nominal net buyers, just 28 Crores and 45 Crores respectively. In such low volumes when Institutions are playing neutral, it is very easy for the manipulators to take the market in whichever direction he wants. Either way pointer given will be wrong, thus Technical Analysts will have the most difficult times to predict. For e.g. Manipulators need to sell a certain quantity of an index heavy stock like ONGC within few seconds thus tumbling that stock by 10-20 bucks. Index will fall thus prompting other traders to sell whatever they may be holding, thus plunging the indices further. In such falls, no investor or trader will dare to make any fresh purchases. If such concentrated selling is done by a cartel, that too in 3 or 4 counters, say ONGC, Reliance, ICICI Bank and Tata Steel, then the operation is much easier. Sales figures from main auto stocks were announced during trading time, which happened to be drastically down, helping the bears to hammer left, right and centre.

Asian markets opened in negative zone. Only Hangseng managed to go higher to close in green, up by 1.6%. Nikkei was down 1.35% and STI down 2.45%. Bank of Japan is scheduled to have an Emergency Meeting 02 Dec. Hefty stimulus package by China has created suspicion among investors that something is wrong in China too. European markets opened mildly in red and continued to slide through the session, ending at the lowest. FTSE was down 5.2%, Dax down 5.9% and Cac down 5.6%. Euro zone manufacturing activity has slumped to new record lows in November. German retail sales dropped for the second month in a row. Above all 15 Nation Eurozone failed on Monday to commit to a proposed 200-billion-euro economic stimulus target. US Stocks opened with deep cuts and nose-dived further ending at the day's low recording 4th largest ever fall. Dow ended down 7.7%, Nasdaq and S&P both down 8.95%. The US economy has been in a recession since December 2007, according to the National Bureau of Economic Research, a non-profiting organization. US manufacturing shrunk more than expected in November, according to ISM Index national survey. Financial stocks declined whereas Auto stocks held ground anticipating the bail out package this week-end; Black Friday sales were up 3.0%, according to ShopperTrak. Oil prices fall after OPEC postponed the decision to cut output to 17 Dec. Crude has nose-dived at this news to about 49$/bbl thus lowering the energy stocks. Dollar is weaker against Yen at 93.10 but stronger against Rupee at 50.29, Rupee being historically at the lowest ever close. With booming Yen, there exists the risk of unwinding of Yen carry trades.

It is now official that US is in recession since Dec 2007. Having already passed 11 months behind, the current recession is expected to be the 3rd largest since the great Depression of 1919. Two of the recessions since then were just 8 months each and those of mid 1970 and early 1980 were 16 months each. This means the economy will start growing within next couple of months to 6 months. Assuming this time it is tackled well, US economy must be back on rail before mid 2009, Hence, the worst is already behind. Barack ObamaBarack Obama will hopefully tackle the situation to be kept well under control.

Prime Minister is expected to take stock of the Financial situation and take some immediate measures to ensure that the GDP growth remains well above 7.6% announced in Q2. Inflation during the ensuing week will be still lower around 8.6 and will go down further, considering the tumbling crude and commodity price. India is one of the biggest beneficiary of lower crude price as the country has to spend heavily on imported crude. Inflation will nose dive soon after fuel price cut is announced which is also expected very soon. PM may convince the RBI the need to cut the rates further. Govt is expected to announce an Infrastructure package which will help companies like GMR Infra. Tata Steel will declare the consolidated Q2 results today which will be lacklustre, however, the stock will start going up soon after.

With very weak global cues, Sensex is expected to open wide gap down and hit the day's low in opening hour itself. Bargain hunting will lift stocks thereafter. Any announcements from RBI or Govt also can influence the turnaround. Investors may buy stocks when Sensex is about 8500 with a medium term outlook of 6 to 9 months. Day traders may buy if Sensex goes above 8990 or when Sensex is closer to the lower end for the day. At this level, the downfall may not be more than yet another 200 points on Sensex or 60 points on Nifty which means we are already at or close to the bottom by a day or two. Whereas I perceive 8466 Sensex and 2564 Nifty being the day's rock bottom, this fall may not be stretching below 8315 and 2500 respectively before a turnaround take place. Investors will hardly lose anything whereas chances of appreciation to 10900 and 3240 respectively during December is more than just a possibility. One can choose from the following stocks: Tata Steel, ICICI Bank, Reliance Ind, L&T, ONGC, GMR Infra, Unitech and Triveni Engg. I am suggesting all these purely on value based. Except Tata Steel, ICICI bank and Triveni, none others are technically giving a buy call. With low volumes, it is extremely difficult for the Bears now to cover their positions entirely without allowing the stocks to flare up. Thus, unexpected, heavy up-move can also be expected, not-withstanding negative global cues. Last Friday was a case similar when market was supposed to have nose-dived on account of terror attack and F&O expiry, bears covered thus maintaining the indices in green.

Sensex: Supports: 8653, 8466 Resistances: 8990, 9177
Likely Trading Range: 8495, 9009