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It was yet another intensly volatile day. For a change, we managed to close in the green with short covering helping the bulls. The Nifty closed at 4,921 up 57 points, while the Sensex shut shop at 16,587 up 247 points. So, which way will the markets trade from here and will it see a further correction?

Deven Choksey of KR Choksey Securities sees a further 5% cut in the Sensex. "In the next two weeks from now, the maximum downside on the Nifty and Sensex would be somewhere around 5% from current levels. If that happens, then the door will have to crack below 12,000 level. If it does crack below 12,000 levels, then we will see further downside. At current levels, the markets will consolidate between 16,200 to 16,900 for now and then decide which way it wants to go."

Choksey said FII participation in the market is gradually coming down. There is non-action on their part and at most actions are there only on the selling side. They may not be totally against the valuations as far as the market is concerned but technically they are quite pessimistic as far as the levels are concerned. So, maybe people are waiting for some better news to flow into the market for taking some kind of decisions at this point of time."

Venkat Subramanium, Director, Gryffon Investment Advisors, doesn’t expect a big downside for the market from here. "From last September, when we started off this rally after the first Fed cut post the sub-prime crisis, we have had about two-months of sharp rally, where there was almost a panic kind of a buying and where foreign investors moved assets out of the dollar expecting the Fed cut to continue. This money moving to emerging markets and dollar and other currencies. Emerging market equities have given up quite a bit of their gains. If we go back to 15,500 levels seen last September, we would have given up all the gains that we made since the liquidity gust took us to 21,000. We are closer to that than to 21,000."

Subramanium is looking for support to emerge around 15,000-16,000. "If there is no earnings estimates change, then that gives you a reasonably good upside relative to what the downside could be. A bit of stability and bottom around that level should be expected in the next 2-3 weeks."

Robert Kalin of DWS said the markets might rally in the near-term. "Investors are going to struggle to find good news in the global arena any time soon."

He sees the risk reward turning favourable. "We are probably getting close to where you could see a bounce here. We are probably a little oversold. 4,800 seems to be a good support level for the Nifty. We may go back up to 5,000. But in the next few months, we might see 4,500. After 4,500, you will start to see some people take a serious look at the markets. So, the risk reward is starting to turn favourable for investors. It is going to be a very choppy market in the short-term. We are in a somewhat downward bias with periodic rallies and bounces for the next few months."

Kalin has a negative bias towards the market over the next 3-6 months. "Until we have some signs that we are going to get some moderation in the pace of the slowdown economically or at least some stabilization in places like US and Europe, it is going to be difficult to get a strong rally."

TP Raman, MD, Sundaram Mutual Fund AMC, said the markets could remain volatile till issues in the US sub-prime market settle. "There are also expectations that there is going to be a significant rate cut, which seems to be keeping the market on tender hook. We can expect to see a few more days of global uncertainties in the market."

Vijay Bhambwani of bsplindia.com feels the markets will see a deeper correction. "I would not call this a bear market. People need to adjust or get used to the fact that this is not a correction of a 5-6 month bullish patch. But this is a correction of a four-and-a-half year old bull market, which started in May 2003 and terminated in January 2008. So, the correction or the cut is going to be deep. It's going to take a long while."

Source: Moneycontrol.com