Volatile Sensex: Players see weak outlook

The Bombay Stock Exchange Sensitive Index made a dramatic recovery of over 600 points on Monday from the day's low, but that seems to be a small consolation for the market, if top players are to be believed.

Most expect more bad news which will pull down the Sensex to 13,000-14,000 in the near-term.

The Sensex finally closed at 15,923.72, down just 51.80 points (0.32 per cent). This is the lowest close for the Sensex since last September.

Leading the bear chorus is investment guru Marc Faber. "New highs are out of the question," he told a private television channel. "The Sensex may test 14,000 before slipping to 12,000," he said.

Markets move up and down and sometimes they do not take much of a catalyst to make the move down, he said.

Morgan Stanley's Managing Director Ridham Desai said the technical position of the market combined with the "purging" of speculative activity also does not favour the market.

"Global risk aversion is rising, and India's high-beta (high volatility) characteristic is showing up in the worst possible manner," he said in a report.

According to market participants, a couple of big operators have created major short positions in the market.

Players said a huge amount of short covering was seen at lower levels on Monday, indicating at least some profit booking.

Madhusudan Kela, chief of Reliance Mutual Fund, said stock prices at current levels looked attractive. "But, it is difficult to predict the bottom," he added.

Desai, however, does not think investors should despair. "The policy environment, coupled with return and valuation dispersion and earnings prospects, implies that there are still stocks and sectors to buy. The earnings downside seems concentrated in financials, industrials, materials, telecoms, and utilities based on a comparison of EBITDA margins, RoE and consensus growth expectations versus historical averages," said Desai.

Alok Sama, head of Dubai-based Baer Capital, which is planning two India-specific hedge funds, however expects the market to turn around sooner.

"Last year, the market witnessed a lot of leveraged buying through the yen carry-trade. This liquidity has almost dried up (after the dollar fell against the Japanese currency). The Sensex will be range bound between 15,000 and 17,000," he said.