The past week has been quite a loss for the stock market. Investors lost more than they earned. However, there was some respite from the recovery in the market on Friday. Let us know how the stock market will move in March.
It is important to understand that how much will the Russo-Ukraine war affect India? Is it really war or something like Kargil or Gulf or Afghanistan, which will affect more? Nifty has corrected 13% while DoW has only 11% and the fact that US remains diplomatically at war with Russia for OIL. He doesn't do this to India. The 5% crash on expiry day was the second incident after 2020, when we reacted to COVID and the market collapsed. It was such a loss, which affected India more than any other country in the world. Russian markets corrected 50% but not compared with India. The DOW broke no more than 17% after 1940. There were major corrections on just 3 occasions, they are 2020 COVID 34% (78% growth in 1 year thereafter), 2008 Lehman 33% (40% growth in 1 year) and 1987 34% (27% growth in 1 year) ) whereas this time DOW has already done 11% correction. Every correction has been followed by a massive rally (25% to 37%) and this time too the situation will be no different.
For Russia it is just that Ukraine should not be a member of NATO. Once UKRAINE withdraws the NATO membership application, the WAR will be over. Then you will start getting good results. This can happen anytime.
The fall of 2700 points of the Sensex was the second major fall after March 20. Such a drop opens the door for further downside but not when the market is highly oversold. Yes, with 30 RSI, I do not expect the market to decline further. The open interest in the Nifty was 1.02 crore before the fall in FEB, while the expiry of 850 points on Thursday, the open interest increased to 1.25 crore shares in March 2022. Why FPIs, Operators and HNIs (Combined) increased the long bets to around 25%. It should be read along with RSI data, Nifty PE and GDP by market capitalization, which we should review.
After the fall, the PE was just 21 on Thursday and there was no change in earnings in FY22. Though there will be a fall in some parts due to rising inflation, lower margins and some other reasons, still Nifty PE will not be impacted as only 50 companies represent Nifty. You have to compare this PE with 28.5 where you were not ready to book profits. That is, the low level of 11.7 in 1991. Those who expect Nifty to test 12000, I must commend them as they are brave and expect PE to come up to 12. One has to speculate and I repeat that there is no short term bearish and long term bullish concept in the world. There is no beer market for a 10 to 17% correction. We are still in a bull market and all of these are just called corrections, sometimes small like 4 to 5%, sometimes 10 to 11% down and sometimes 28 to 34% with huge downside Huh.
After discussing PE, let us see what is driving the market capitalization to GDP ratio. It is around 1.06 which has come down from 1.18 and the acceptable level is around 1.49 (2007), so on this front also I don't see any cause for concern. Now let's see RSI. It has dropped below 30 and I believe anything below 31 is highly oversold. In fact, whenever the RSI has gone below 37 in the last 4 months, the markets have bounced. RSI touched the level of 31 only 3 times after March 2020 which is as follows.
20 December 2021- 32
30 November 2021- 31
30 March 2020-. 33
Earlier the RSI touched a low of 13 and remained between 13 to 30 (average 24) for only 11 trading sessions in March 2020 and the rest is history. How long you want to be bearish with the current RSI at 30 (Thursday) is your call. The RSI (Friday) corrected to 39, yet it still shows massively oversold conditions.
Out of the 3 major triggers for the weakness, the Russia-Ukrain War (no significant impact on India), margin and cash stocks on F&O (now postponed till May 2) and termination hence the operators and FPIs were successful in their mission. Because we were very scared and reacting to the news of war as if India is at war with Britain.
Now look at the number. We import $2 billion worth from Ukraine and $5.5 billion from Russia while our exports to Ukraine are $372 million and Russia $2.6 billion. How does this affect the Indian economy of the size of 3 trillion dollars...? Yes, the rise in crude is a matter of concern.
The growth of the country is in the right direction. Government of India is doing its best. The Finance Minister has handled all the crises well including COVID 19 and hence I am sure she will handle the current situation well. 10 March could be the reason for formation of 1.25 crore Nifty OI. The results of the assembly elections will come on that day.
Opinion in this note is my personal. I request you to watch the movement of the markets because this time I have been wrong. But of course, in spite of such slowdown, CNI members' wealth has remained intact and they have outperformed the markets. I would suggest adding only those stocks where you have already reached. You bought the stock on your belief and just because the prices have decreased by 25% doesn't mean that your trust is wrong. There are many big events in March. In these, the election results will come on March 10 and the year end on March 31.
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