Correction or bulls feigning weakness?

Nifty futures trading at a discount to cash leads to nervousness in the markets. Today, Nifty underlining (Cash) was traded at 3165 as against Nifty futures at 3135 - a discount of 30 points.

The markets reacted sharply to this with the Sensex declining a whopping 225 points in intra-day deals, and the Nifty slipping 73 points during the day.

So, is this the start of a correction or are the bear operators being taken for a ride again?

During the current calendar year, Nifty futures have been trading at a discount for as many as 38 trading sessions out of the total 44 trading sessions.

Out of the 38 trading sessions, the market was down on 16 occasions whenever Nifty futures were trading at a discount. However, overall, the Sensex moved up from 9390.14 on January 1 to 10725.67 on March 7. The S&P CNX Nifty rose from 2835.95 to 3182.80.

Also, in the current calendar year, whenever the discounts have increased by more than 30 points for more than 1 or 2 days, the equity markets have rallied sharply after reacting to the discount.

For example, spot Nifty was down 40 points on January 10 with Nifty discount of over 20 points. Thereafter, by the month-end, the market rallied with Nifty up 150 points and Sensex up 600 points.

The question is - why should it rally now? Indian mutual funds are sitting on cash worth Rs 9,000 crore. The FIIs so far have been bullish on India Inc. Market observers say a total of Rs 22,000 crore cash is waiting for a correction.

Ahead of the tax paying week, which is usually between March 9 and March 15, the Indian equity markets usually undergo a correction. Also, margin funding stops during this period.

In the last five years, the market has reacted in March after reaching its high levels around 7 or 8 March.

So, what is the likely scenario this time?