The domestic equity market had a turbulent week as more skeletons tumbled out in the ongoing liquidity crises that the financial markets have been facing.
After DHFL defaulted on a portion of interest payments and the difficulty it has been facing in rolling over commercial papers give a glimpse of what happened in the US a decade ago during the subprime crisis.Can this be dubbed as the Indian version of subprime crisis is a question Dalal Street has been grappling with.
The malaise lies in the rather illiquid nature of assets which the lenders had agreed to finance.
But since lenders are no longer able to roll over their bonds/commercial papers, they have no option but to sell the mortgaged assets, which have become very difficult in the current market.The temporary funding gap, unless RBI proactively helps them, can snowball into a bigger crisis of confidence, leading the equity market further downhill.For years, Dalal Street has presumed that Indian markets move in tandem with the US bourses, but this time investors got caught in the Dow googly.
Our market has its own economic lifecycle, demographics, physiology and many times moves independently from the US indices.
While the US markets rallied, our market faced the heat mainly due to domestic factors such as slowing growth.
So traders who thought Indian market will Dow in step got trapped.Event of the WeekJune 3 was a historic day, with Nifty touching its lifetime highs and that very day, FIIs made one of their biggest purchases of Rs 3,068 crore.
Sometimes, FIIs too behave like retail participants and buy at the top of the cycle.
Even since those purchases, the market has tanked and erased all the gains made during the past week.This proves that blindly following particular investors/institutions without the application of mind can have harmful repercussions.Technical OutlookNifty50 has formed a dark cloud on the weekly chart, signalled the beginning of a deeper correction cycle.
On the daily chart, volumes have been higher on down days then on rising days, which further confirms that there is limited upside and more room for downside.
The upper trend line indeed acted as a resistance and since the validity of the trendlines are now established, a target of 11,400 seems quite likely for Nifty on the lower side.
Sell on rise should be the strategy for traders now and all long trading positions may be squared off.Expectations for the WeekThe market will calmly digest the past earnings season in the days ahead.
Many of the companies have delivered returns below expectations.
Additionally, earnings will be impacted due to international conflicts and what the Budget might hold in the future.
The equity indices will not be in a hurry to move higher, but will sensibly correct to reasonable levels, which can then enable them to be ready to ride the next wave of upside if Budget policies turn out to be progressive and growth-oriented.
Investors in debt mutual funds must not panic to withdraw their investments, but simply stay put and let the tide heal itself over time.Nifty50 closed the week at 11,870, down 0.43 per cent.