INDIAN STOCK MARKET
The BSE Index-31st October Close-3711.02
We cautioned Indian investors in Mid-September about the BSE Index (at 4562 points).Taking a contrarian stand we held out that ‘The index may fall much more than the market consensus.Based on the long term charts of the BSE Index the market may reach down to 3400 levels and after corrective rallies would decline to the 2800 levels.’
Institutional investors and market analysts who preferred to be guided by sectoral considerations and corporate earnings growth stories particularly in the ICE (Information,Communications,and entertainment) sector were caught on the wrong foot by the Oil price rise.
Portfolios already damaged by the crash from the Feb peak of 5924 points, accumulated losses while the Index plunged to a close of 3593 on the 18th of October and an intra-day low of 3491 the next day.
About the performance of the Mutual Funds an analyst writing in a leading daily has this to say,
‘Fund managers are sticking to their favourite tech, media and telecom buys.They would like Investors to cash in on the present situation and average out their acquisition costs. Figures form the Association of MFs in India AMFI show that during the 6 month period April to Sept 2000 the Funds’s loss is Rs 21404 crores.
When the performance is measured against the stated objective of minimising risk and maximising returns from Professional portfolio management ,it has brought into sharp focus the ability or the lack of it of fund managers, to retain the portfolio let alone maximise the returns.
Down but not out, some market participants seem to have shown great courage going by their recent statements.
The Chairman of a large Mutual Fund has now announced that ' The bloodbath is over...Market has bottomed out and it will now pick up... we intend to step up buying'
Can we take his word for it? Specially when the performance of that Fund has been far from satisfactory. Can we repose faith in his timing ?
Not if we were to follow the MD of another large Fund who has made an honest statement that,
‘Typically Fund Managers are not good at timing the market.Where they can add value is in picking stocks......'
An MD of a firm of Share and Stock Brokers was equally honest in admitting ‘Frankly nobody is able to predict where the market is headed......But I dont think it will fall below the 3500 mark again,at least not till the budget.’
But the President of a leading Stock Exchange has declared that 'The Bearish phase got extended a bit too long'.And further claimed that the prices had 'bottomed out' and ‘will start moving up soon' .He also gave good reasons for revival.’
Quite unmindful of the authentic reports on the Indian Economy pointing to negative trends he has professed that there is ‘There is virtually nothing wrong with the fudamentals ‘
So we reproduce below excerpts from reports on the factual state of the Economy.
BL 24/10/2000-The latest estimates of industrial production (IIP) released by the Central Statistical Organisation (CSO) indicate a continuing deceleration in the Economy for the 5th consecutive month of August.The cumulative growth is put at 5.3% vrs 6.2% previous year.
The Institute of Economiic growth ,New Delhi has predicted that recent Oil price hikes would pull down the Economic growth to 3.3% by November.
The cumulative growth in Capital goods sector recorded this year is (-)0.18% vrs 11.8% last year.
According to CMIE there has been a decline of 48% in the investments committed by the Corporate sector in the last 3 years.Excess capacities created earlier and the threat of growing imports have acted as a deterrent to business houses.
Lowering it's growth forecast for 2000-2001 it based it's pessimism on two years of stagnation in Agricultural production, resulting in decline of agricultural incomes and slowdown in investment activity,
When conflicting reports and statements like these confuse the potential investor it is better to take a time tested Elliotian view of the market from price charts.
BSE Index Chart View.
A comprehensive long term chart analysis of the BSE Index is on the agenda of future edition..At this point we would say that
a.The BSE Index in moving up from the Dec 98 lows of 2742 points upto a 11 th Feb 2000 high close of 5933 touched a Cycle channel top. The channel is drawn connecting the April 92 and Feb 2000 highs and the lows of August 90 and Dec 98. The long sideways moving 4th wave Diagonal Triangle correction (alternately, a triangle cum flat ) that preceded this final upward thrust only confirms this view.Hence we need to seriously consider fair period of bear market action.
b.The decline from the Feb peak to the April low of 3920 points constitutes an A wave that is only the first leg of a triple wave correction.The 33.82% correction of the wave is nearly a fibonacci ratio and also marks a nearly 61.8% correction of the entire advance from Dec 98 to the market peak.
c.The third leg of the correction that is underway has a few downside possibilities in terms of A and C wave ratios.Unless the market makes a dramatic immediate turnaround,and ( there appears nothing in the offing to support an immediate bullish trend) we may consider the probability of equality of Waves A and C in terms of length and %age movement .
The uppermost of the downside possibilities is 3524.The 18th october close of 3593 almost tested this level.The intra day low of the next trading session sunk the market upto 3491.
Other potential terminations points fall within a range of 2594 and 3285 points on the BSE Index. The lowest of the above is also near the terminal area of the preceding sideways corrective 4th wave i.e at 2742 points in Dec 98.
Unless there is a complete change of scenario encompassing international trends,the national economy,government policy,changes in regulations etc that negate the above possibility, from a current Elliot Wave perspective any investment in the market above the projected downside levels would carry more than a reasonable risk.
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