Indices Likely To Slide Further

`Whatever goes up needs to come down’, this is what law of gravity suggests. However Indian equity markets in the past few weeks had defied this rule and only witnessed one way movement that was up-wards. However in the past few trading sessions Indian equity markets are making more rational movement. Yes we are talking about the profit booking that has happened over the past few trading session.

We feel with most of the triggers in the market already being discounted, investors are seeking new triggers. And as there are hardly any triggers in the near term, we feel it is obvious that profit book will happen.

Apart from this there were other reasons also. Benchmark indices, Sensex and Nifty, have extended losses and have hit fresh intraday low weighed down by spike in oil price amid increasing violence in Iraq. The 30-share Sensex is down 348 points and the 50-share Nifty was down 107 points at 25,228.17 and 7,542.10level, respectively.

During the week, the Sensex lost 168.29 points or 0.66 percent to close at 25228.17 and the Nifty fell below the 7550 level, down 41.3 points or 0.54 percent to 7542.10 after hitting record highs of 25735.87 and 7700.05, respectively. The market had rallied nearly 5 percent in previous week.

Shares of mid-and small-cap companies came under selling on Friday, falling by up to 11% on the BSE after oil prices hit their highest level in nearly nine months, as escalating civil war in Iraq hit risk appetite. Brent crude climbed to a nine-month high near $114 a barrel on Friday, as supply disruption fears took centre stage after the United States threatened military action in Iraq against Sunni Islamist militants who  are pushing on towards Baghdad, the Reuters report suggested.

We are of the opinion that, Iraq crisis is a short term problem that may drag the Nifty another 100 odd points but not more. However going ahead Union Budget and monsoon will be the two important factors to be looked after.  

While the Indian equities witnessed a kind of sell off, US markets ended last trading session on a positive note. While Dow closed up by 41 points, S&P closed in green with gains of 6 points. The US markets witnessed an up-move as US ruled out any troops in Iraq.

However there is fear about violence and hence its impact can be seen on the Asian markets also. Today, most Asian stocks fell, and U.S. futures dropped amid an escalation of violence in Iraq. Experts suggested that markets have reacted with movements in crude and in precious metals prices, some selling out of equities into bonds. As a result Nikkei is down 0.72% and Hang Seng is also down 0.23%. Shanghai Composite is trading almost flat with marginal gains.

SGX Nifty is trading at 7551 with loss of 14 points. We feel the Indian equity markets are likely to open on a negative note as profit booking would continue. There is a high possibility of mid cap and Small cap counters witnessing more pressure. On Friday also it was the midcap and small Cap index that witnessed pressure.