Following the move of RBI that hiked the Cash Reserve Ratio by 50 bps to 6.50% (back in 2006 may RBI did a similar exercise and the market took a month to get back to those rates again) and also the Repo Rate has been hiked from 7.50% to 7.75% . The response to this has been a sever bloodbath in the market witnessing a 600 point fall in the sensex and a 187 points fall in the nifty . Absolute bearish hug is ruling the market currently and it will take some time for the market forces to get out of this bearish grip. In terms of the magnitude of this down move of the markets this is the second biggest fall in absolute terms closing near the day’s low Realty stocks, auto stocks, and banking stocks have taken the major blow in this downfall. It is not a good sign for small time investors to hold the stocks rather can exit their positions now to take position much later at much lesser rates once the bottom out is over. Next 2 days is going to see a major loss in the small cap as well. To think that this is how we start a financial year gives a very negative breadth to the Indian economy. All this is leading to FII’s looking at Indian market as something that needs to be avoided for the moment so this might result in most of the FII’s deciding to pull out from the market resulting in a bearish hug getting a bigger grip on the market thus resulting in lower prices for a longer period. India Inc is already reeling under scarcity of money in the market due to following factors
- Increase in CRR resulting in Higher PLR
- Less money sources in market
- Greater Taxes like MAT
- Advance tax payments
Now these are market forces that are hear to stay and India Inc needs to figure out strategies to meet these challenges and workaround them. So for a few weeks stay away from the market guys and if you are fold wait for a few consecutive upwards moves before taking any position in the market.