Today was on of the most panicky days for stock markets which reminded me of the days after the Lehman Brothers bankruptcy.
Before the open of the market today there was a news that Reliance Communications and Reliance Infra were removed from the Sensex index. Reliance ADAG were expected to open down by atleast down by 3%. After the market opened, there was a panic and there was only selling at one point of time which took market down more than 3% in a straight line. The news that Indian Govt. is going to negotiate the tax treaty with Mauritius spooked the market. As we all know that most of the black money from India goes to Mauritius or Switzerland and over 35 per cent of India's FDI and close to 70 per cent of FII inflows are routed through Mauritius, and hence the announcement triggered a selloff that took the BSE benchmark Sensex over 550 points lower in early trade. GTL and GTL Infra which has maximum investment from Mauritius saw a loss of 50% on stock price immediately. Govt. later came out and clarified that it was not negotiating any treaty with Mauritius. Market recovered almost 50% of the fall but then again drifted lower. This shows that the news was just a reason for sell off that was due. There was another thing going on in the market. For the big investors(High networth investors-HNI) who usually trade on margin(for example, if for 25% margin then a HNI can trade for Rs.4crores by just paying Rs.1crore) , the sudden fall resulted in margin call or stop loss getting triggered. As the stop losses on their buy positions got triggered, the shares which they held on margin got automatically sold in the market causing more selling in the market.
The Biggest question, "What will happen next?"
First Scenario: The volatility in previous trading days and the suddenly fall today has scared the retail investors who are net buyers in the market. These investors who deploy their savings in the market and are long term investors will not put their money because of sheer scare and would opt for FDs or gold investments. The retails investors who are holding will also opt to sell their investments and sit on cash to buy again at substantial lower level. This will mean a very low participation in the market.
Second scenario: The FIIs and HNIs who are the key participants in the market. Many of their margin calls might have got triggered because of the panic fall today and might be at substantial losses. To cover their losses and make the payment to brokers who provided the marginal money, they will sell their other stock holdings. This will inturn create more selling pressure on the market. The ones which have some money left will actual prefer short selling then to buy in this uncertain environment. Short selling will create the additional selling pressure of the market.
If these scenarios turn out to be true and which seems to be the possibilty, markets will go down lower.
Today was another False closing. Sensex closed at 17506 and Nifty at 5257 which are perfect False closing points. Out of previous 12 occasions , 10 False closings have resulted in sell off the next day. This time I expect a bigger sell off.
What about tomorrow?
Tomorrow if Asian markets open up because of the US cues which are positive(US market up by 0.6%) then we might also see a bit of green on our market but then again the selling will begin and a minimum of 1% and maximum of 2% downside can be easily expected on the market in next 2 days.
Previous recommendations
I had suggested to buy put options last week after thursdays closing. Those Nifty puts options have increased 3 times as of todays closing. I suggest holding them for another 2 days for better returns. I suggest buying 5200 put option available at 52 for a target of 80 in next 2 days and a stop loss of 45.
Happy Trading :)
Before the open of the market today there was a news that Reliance Communications and Reliance Infra were removed from the Sensex index. Reliance ADAG were expected to open down by atleast down by 3%. After the market opened, there was a panic and there was only selling at one point of time which took market down more than 3% in a straight line. The news that Indian Govt. is going to negotiate the tax treaty with Mauritius spooked the market. As we all know that most of the black money from India goes to Mauritius or Switzerland and over 35 per cent of India's FDI and close to 70 per cent of FII inflows are routed through Mauritius, and hence the announcement triggered a selloff that took the BSE benchmark Sensex over 550 points lower in early trade. GTL and GTL Infra which has maximum investment from Mauritius saw a loss of 50% on stock price immediately. Govt. later came out and clarified that it was not negotiating any treaty with Mauritius. Market recovered almost 50% of the fall but then again drifted lower. This shows that the news was just a reason for sell off that was due. There was another thing going on in the market. For the big investors(High networth investors-HNI) who usually trade on margin(for example, if for 25% margin then a HNI can trade for Rs.4crores by just paying Rs.1crore) , the sudden fall resulted in margin call or stop loss getting triggered. As the stop losses on their buy positions got triggered, the shares which they held on margin got automatically sold in the market causing more selling in the market.
The Biggest question, "What will happen next?"
First Scenario: The volatility in previous trading days and the suddenly fall today has scared the retail investors who are net buyers in the market. These investors who deploy their savings in the market and are long term investors will not put their money because of sheer scare and would opt for FDs or gold investments. The retails investors who are holding will also opt to sell their investments and sit on cash to buy again at substantial lower level. This will mean a very low participation in the market.
Second scenario: The FIIs and HNIs who are the key participants in the market. Many of their margin calls might have got triggered because of the panic fall today and might be at substantial losses. To cover their losses and make the payment to brokers who provided the marginal money, they will sell their other stock holdings. This will inturn create more selling pressure on the market. The ones which have some money left will actual prefer short selling then to buy in this uncertain environment. Short selling will create the additional selling pressure of the market.
If these scenarios turn out to be true and which seems to be the possibilty, markets will go down lower.
Today was another False closing. Sensex closed at 17506 and Nifty at 5257 which are perfect False closing points. Out of previous 12 occasions , 10 False closings have resulted in sell off the next day. This time I expect a bigger sell off.
What about tomorrow?
Tomorrow if Asian markets open up because of the US cues which are positive(US market up by 0.6%) then we might also see a bit of green on our market but then again the selling will begin and a minimum of 1% and maximum of 2% downside can be easily expected on the market in next 2 days.
Previous recommendations
I had suggested to buy put options last week after thursdays closing. Those Nifty puts options have increased 3 times as of todays closing. I suggest holding them for another 2 days for better returns. I suggest buying 5200 put option available at 52 for a target of 80 in next 2 days and a stop loss of 45.
Happy Trading :)
