Sensex suffers second worst fall in history; time for bottom fishing?

The fear that growing coronavirus cases may hit global growth intensified and bled Dalal Street yet again on February 28.

The Indian market fell like a house of cards owing to a strong across-the-board selloff in equities. The Sensex nosedived 1,448 points, or 3.64 percent, to 38,297.29, while the Nifty plunged 432 points, or 3.71 percent, to 11,201.75.

This was the sixth consecutive day of losses for the two benchmark indices. In the last six days, the Sensex has come off 3,026 points and the Nifty has lost 924 points.

Investors on BSE became poorer by Rs 11.8 lakh crore in the six sessions as the overall market capitalisation of BSE-listed firms dropped to Rs 146.94 lakh crore from Rs 158.71 lakh crore on February 19. On February 28 alone, investors lost around Rs 5.46 lakh crore.

Data shows this was the second-worst showing in the history for the Sensex. On August 24, 2015, the Sensex fell 1,624.51 points on a surge in global crude prices and a strong selloff in Chinese equities.

Capture

The market is expected to see some lingering effect of coronavirus. However, experts say the market appears oversold and investors can have a lot of opportunities to accumulate.

“During past instances like coronavirus, markets fell gradually and recovered gradually. This time the fall has been vertical and that, too, in a matter of few days. Going by past precedents, the recovery in markets (post containment of such epidemics) is equal or higher than the fall. As the fall has been too-fast-too-soon, markets have gone into the oversold zone (i.e. RSI of Nifty-50 has gone to 25 levels),” Rusmik Oza, Senior VP (Head of Fundamental Research-PCG) at Kotak Securities, said.

Is it time for bottom fishing?

Catching a falling knife has its perils. While there is no doubt that the market will recover after some weeks, it can be deleterious for your portfolio if you judge the situation wrongly.

“While the market has seen a sharp correction, it is still not the time for bottom fishing in the current market as we expect the market to fall further,” said Vikas Jain, Senior Research Analyst, Reliance Securities.

“Investors should stay on sidelines rather than trying to catch a falling knife. It’s better to buy higher when there is clarity and when volatility reduces in global markets rather than buying in falls.”

G Chokkalingam, Founder & MD, Equinomics Research Advisory, says if coronavirus spreads in India, there could be another one or two rounds of such falls. If it does not, the market could bounce back in the next few weeks.

“Wait for the next seven to 10 days at least. Don’t panic and sell out. Stay invested and once the recovery starts in the market, go after equities in a big way,” Chokkalingam said.

Amar Ambani, Senior President and Head of Research, YES Securities, thinks the impact of coronavirus on sentiment would not last even though it is difficult to predict the next trading session.

“My sense is that we will be much better-off, a couple of months down the road. The market fall, so far, is factoring in a reasonably bad case scenario, in my opinion. I am hopeful that people will increasingly be quarantined, a possible cure will be invented and the advent of summer in many countries will result in fading away of the virus effect,” Ambani said.

“Even as this issue drags near-term growth in certain sectors, what lends support is the beaten-down market multiple. We must remember that the broader Indian market has been in a consolidation phase since the start of the year 2018. The near-term index support level is difficult to call, but time wise, the market impact should not last long,” he added.

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