Is Sensex entering a corrective zone?

MUMBAI: Is Dalal Street's dream run that saw the BSE sensex more than double in seven months entering a corrective zone? Although market players are a divided lot,but a set of data points to a correction.

In the two weeks since the Muhurat Day trading on October 17, the sensex has lost nearly 8%, or 1,340 points, to its current level of 15,896. This huge slide has also made the last fortnight the worst for the sensex in the post-Diwali trading period in 10 years. To a large extent, this loss is attributed to selling by foreign institutions while buying by the domestic ones have given it some cushion, market players said.
Since October 17, while FIIs have net sold stocks worth about Rs 4,460 crore (nearly $950 million), net buying by domestic institutions is about Rs 2,200 crore, BSE data showed. While the BSE and NSE data on institutional trading reflect their activities only in the secondary market, the data published by Sebi also include their investments through IPOs, QIPs and other routes.

BSE data showed that in the first 16 days of October, FIIs had a net buying figure of Rs 4,460 crore while during the second half of the month they booked profit and took an equal amount off the table. ‘‘Very clearly concerted selling happening on the FII front,'' said Arun Kejriwal, director, KRIS, an investment advisory firm. If this trend continues, the sensex could slide further, and at a fast clip, institutional dealers said.
Market players also pointed out that since Diwali Day, at every high, investors are coming in to book profits. As a result, even if the index opened strong, in most sessions, late selling pulled it down to a negative close. For example, on Friday, the index opened about 100 points higher, rallied over 300 points in early trades but after some hectic late selling crashed over 550 points from its intra-day high. It finally settled 156 points, or 1%, off.

Last week, in each of the five trading sessions, the sensex closed lower than its previous close.

‘‘There could be some small bounce back from here but the correction will resume soon,'' head of dealing at a domestic broking house said. ‘‘Things have reversed now. A few weeks ago (the indices) used to close higher even if there were weak opening,'' said Kejriwal.

While the sensex has lost nearly 8% since Diwali, the worst hit has been telecom, real estate, constructions, banks and metal stocks. Among the sensex shares, Reliance Communications has lost 26%, DLF is down 20% while Jaiprakash Associates is now 19% off.

And given that the results season is over, dealers also don't see any triggers for the stocks to rally north.