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Have the Markets Bottomed Out?

21 Mar 2020

The markets across the world have crashed badly in the last few weeks and the investors’ wealth has all but wiped out due to this historic crash. There are very limited or no points of recovery.

The Indian equity indices have hit the lower circuit since 2008. If we look back into the history the markets have reacted in this way whenever there has been a global threat. Be it the world wars, Spanish Flu outbreak or any other global threat, the financial markets across the world have always corrected sharply. This is because markets are highly liquid as compared to the broader economy. Hence, the impact on economy is not as sharp as the impact on markets. However, markets are an indicator of the economy and any continued downturn in the markets indicates to a slowdown of the economy.

There is a famous Warren Buffett quote ‘Be fearful when others are greedy and be greedy when others are fearful.’

The markets in their current state are extremely fearful. So, an investor who follows Buffett’s advise would benefit from buying in the current market conditions. Markets have tanked to a great extent right now. Buffett followers are estimating as how much more the markets will fall and when would the rally begin.

However, the saying ‘Never time the markets’ is also true. It’s impossible to say when the carnage on the D-street will end. It is very difficult to figure out the bottom of the market.

A fair indicator of reversal in the markets could be a lower freeze (circuit breaker) when no one is interested in buying and there is negativity all across the market. Nifty 50 had one of its the biggest selloff on March 13, which resulted in a lower freeze (circuit breaker). Markets rebound from the circuit breaker, soon after the circuit breaker opened, but could not hold the rally for long and plunged back to the below 8500 mark in the next week. Over the next week, the markets plunged even lower steadily. Let’s look at the reasons for the same.

Global Events Contributing to the Downfall

The equity markets have been experiencing huge volatility all across the world and the situation is no different with the commodities and currencies market. The week began with a huge crash in oil prices after the end of cartel between Russia and Saudi Arabia. This will surely mark the beginning of a price war between the two largest exporters of oil. Oil is one of the major tools involved in controlling the economy.

Technical Reasons for the Downfall

Nifty 50 closed the week on lower levels, the overall week proved to be very volatile and the index tested the 100-month EMA on the monthly chart. This looks like an overreaction clouded by Coronavirus and global selloff in equities. However, there has been a slight increase in the volume, which confirms that panic selling is almost over in the markets. This can be the formation of a short-term bottom.

Expectations from the governments for revival and reversal

The governments across the world are trying to boost and revive the market sentiments by injecting liquidity and reducing health concerns across the economies which have risen due to the sudden outbreak of the Novel Coronavirus. It is expected to bring back market stability.

This looks like a great opportunity for investors to invest in quality compounders for long term and earn profits. There are various sectors like consumer durables, FMCG, IT etc. which can be a potential buy. However, cyclicals such as metals and PSUs should be strictly avoided.

The current market scenario requires very thorough analysis before taking any decision. The high level of volatility as increased the risks in the markets. In the current scenario, it is recommended to stay safe both physically and financially. It is not at all advisable to enter the current markets without proper analysis and research.

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As On 30th April, 2020
Beginning of month Received during the month Resolved during the month Pending at the end of the month Reason for pendency
214 0 0 1 Closed by us, Filed ATR, SCORES approval awaited

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