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It was a blood bath on Dalal Street. Deep cuts in markets across the globe weighed down investor sentiment, and the markets went into a free fall. The Nifty closed at 5,561, down 220 points, while Sensex shut shop at 18,603, down 678 points - the 3rd biggest single-day fall ever.

Even the midcaps and smallcaps took it on their chin today. It was large scale equity sell off across markets and sectors.

The worst hit index is bankex which has seen a sharp run up in the past few sessions followed by metal, capital goods and power. The sector that is least hit is the IT index on hopes that rupee may not appreciate further against the dollar. The rupee was trading weak at 39.385 against the dollar.

Sajiv Dhawan of JV Capital Services said that he has maintained his call for the past few days. “The call has been the same for the last few days. The midcaps were rising without the leadership from the frontline. I am not a believer that midcaps will continue to outperform frontline for a long period of time. I know it is easy to say after the event has happened. But if you had your stop losses in and you have got no problem, you are probably out at higher levels, you are probably still on a large amount of profit. But what I am finding a bit disturbing is that a lot of investors are holding on and they are now hoping that the markets will bounce back without any real conviction because they have seen this time and again and they say if they sell out now, they may not be able to buy those stocks back, if the upmove starts again.”

He opined that the investor should trade with clarity. He said, “I think you have got to be very clear which stocks you have, why you bought them, were they a tip, were they rumour, some market buzz or was that actually some fundamental in those stocks. If there is nothing fundamental then probably you are wiser off taking a small loss, exiting at the current juncture and reentering when the market stabilises and started to bounce back. If you are in stocks where you believe there is a growth story, there is something fundamental then you can use any sharp correction, 10-20% in whatever the stock is, to average out your position or add a few more.”

Dhawan adds, “I think if you are an Index trader- fine, you got a nice short position, plenty of cushion, good profit for the short after a long time. But the next 2-3 days, will be very important because I do feel a lot of people are still stuck in the futures and with the leveraged positions elsewhere and they might panic over the next 2-3 days if the market don’t stabilise or bounce back.”

Anil Manghnani of Modern Shares & Stock Brokers said that he is not very surprised by what happened in the markets today. “I think in the last two-three weeks action was only in the midcaps. For a while we had been seeing lot of the largecaps falling 3-5%. Even those that are in the midcap index itself, were up 2-3% which was clearly suggesting that some sort of delivery base selling by FIIs was taking place. In addition, continuously over the last few days on the stock futures side, we are seeing hedge sale position being buildup mainly by FIIs. This was clearly suggesting that at least on the largecap front, a fall is definitely round the corner," he said.

He added, "It was probably the euphoria in the midcaps that was not reflecting so much what is happening in the largecaps and now that is all taking place today and I think its pretty much playing catch-up in the sense that while the rest of the world corrected, we didn’t and now that everything else abroad has slowed down, that is the correction; it was likely that eventually we will have to catch-up on the down side. I think most of the markets had fallen about 10%; we were down maybe 3% yesterday. So we are pretty much catching up to that. We have broken through some serious levels and even major trend lines, I don’t think that 18,330, which was a recent bottom will hold now. I think chances are heading closer to 17,770 on the Sensex."

Should this, as a short-term trend be called down?

Manghnani says, “I will call it down and probably sell any bounce if we get like we have seen intra-day falls and pullbacks. I think immediately if suppose one might have a good day overseas also overnight, I think one is going to have a scenario where it’s going to open up and then start correcting. We have seen that already happened two-three times in the last week but like I said it didn’t get accentuated or reflected that closely because the midcaps were flying all around the place and the focus was so much on midcaps. But that phenomena of the Sensex opening up and coming down has been taking place last week and I think in the next few days if there is again a gap up opening then eventually the selling pressure would start again at higher levels and I think we will probably head it lower at least on the Sensex and Nifty in the immediate short-term.”

Source: Moneycontrol.com