The market has witnessed one of the worst October performances so far amid a barrage of negative headwinds, both local and global. Historically, October is considered the worst for the bulls. Incidentally, some of the biggest market crashes of the past century occurred in October. October 2008, October 1987 and October 1929 have all seen major crack in stock prices, not only in India but the world over.
Hopefully, now the October omen is behind us and November Diwali usher in some cheer to the market. The precipitous fall in NBFCs have shaken up even institutional investors.
Major reshuffling has happened on counters like Repco Home, Shriram Transport, DHFL, Indiabulls Housing and Muthoot Finance wherein FPIs have bought and domestic institutions have sold shares, which indicate that although FPIs are in a selling mood at the aggregate level, they still find value in the beaten down NBFC sector.
However, the selloff by DIIs is a matter of concern, as that show the ground-level situation is yet to stabilise. On a holistic view, NBFCs do look like value buys, but waiting for confirmations would be sensible.
A stalwart from the NBFC sector like Bajaj Finance has reassured the market through its management commentaries that structurally this sector is poised for further growth but short-term liquidity woes are only temporary and will normalise soon.
This commentary gives us some confidence that all is not bad for NBFCs.
Event of the Week
Yes Bank has reported a surprise 4 per cent drop in profit on higher provisioning, but NIIs still grew at 28 per cent. However, in spite of all this, the stock has made a panic double-bottom and remained stable after forming a Doji pattern.
This indicates that Mr Market is unwilling to push down the stock further, thus creating a short-term buying opportunity. Similarly, Marutis numbers have deteriorated, but the stock price has recovered sharply from the lows, which indicate that for the moment downside is capped and the worst is priced in, the stock would be ready for a short-term bounce.
Nifty50 seems to be losing momentum on the downside given the improving breath of the market. A time correction also looks like nearing an end. In the beginning of 2018, the market witnessed serious correction for around 38 days and thereafter it reversed. This time also, the market has already corrected for 38 days and at least a short-term reversal is expected.
Traders are advised to cover all shorts if the market strengthens from these levels and initiate long positions with tight stop losses.
Expectations for the Week
Massive losses in the derivative segment have reduced the overall open interest by half from the peak hit a few quarters ago. The current negative narrative in the market has increased the bearish bets by traders in the derivatives segment. But the market has severely corrected and is deeply oversold with the market breadth turning positive for an upside bounce.
Stocks making 52-week lows are steadily coming down from 203 in the previous week to 176 this week. The bearish strength is, therefore, getting reduced, which may lead to a sharp short-covering in the market. This should not be mixed up with a sustained rally.
Investors should keep liquidity on hand, but traders can use these opportunities by taking short-term long bets.
The Nifty50 ended the week at 10,030, down by 2.65 per cent.