The carnage on Dalal Street is getting bloodier, threating to wipe off the entire gain that the stock market has achieved in the Modi era.
Narendra Modi had assumed office as Prime Minister for the first time on May 26, 2014, and then went on to secure a second-term last year.
On Monday, as the market resumed following a 45-minute trading halt after benchmark Sensex hit the 10 per cent lower circuit, Nifty50 traded at 7,813 was, just 5.82 per cent above the 7,359 level where the index had closed on the day the PM was sworn in.
When Prime Minister Modi came to power in 2014, there was an euphoria and across-the-board participation in the market. But the market started correcting since early 2018, and only a few largecap stocks participated in the index rally that hit a peak in January this year.
Nifty hit a record high of 12,430 on January 20, recording a 69 per cent jump in the Modi era, before succumbing to the global selloff. After Monday’s bloodbath, Nifty has come off 37 per cent from the record level as of 1 pm (IST), Monday, March 23.
Indian stock market has eroded some Rs 52 lakh crore of equity investor wealth in the selloff trigger by this endemic breakout.
In the US, the rapid fall in stocks erased entire Trump-era gains by Friday, when the Dow fell another 913 points to close at 19,171, below where it had closed on the day of Trump’s January 2017 inauguration — 19,827. That erased the stock market rally the president had prided his administration on ahead of his re-election bid.
When markets are falling like a house of cards, predicting a bottom is a near-impossible task. Technical charts are painting a grim picture. Analysts say Nifty has the potential to fall 1,500-1,600 points more to go all the way to 6,200 level.
Assuming a 20 per cent hit on FY21 earnings due to the coronavirus disruption, stocks across sectors are expected to see earnings downgrades.
Monday’s fall in Indian stocks came after market regulator Sebi on Friday introduced a host of curbs in both cash and derivative segments, trying to stem the volatility.
“In isolation, it is not possible to find a bottom, more so when you are impacted by the global selloff. But I see Nifty in the wide 7,200-8,000 range on the downside. In the case of any technical pullback, the index could halt near 8,500,” said Milan Vaishnav, Founder at Gemstone Equity Research & Advisory Services.
Nagaraj Shetti, Technical Research Analyst at HDFC Securities, paints a grimmer picture. “The panic has continued and technical charts have not given any bottom so far. We see strong support at levels around the 6,200-6,300 range over the next one month. So brace for a downside of another 1500 points,” he said.
Nobody predicted Nifty to fall from 12,450-odd levels this way, says Chandan Taparia of Motilal Oswal Securities.
“It’s a falling knife. Let the volatility and concerns over coronavirus subside. Supports so far are placed around 7,200 and 7,000 levels. Don’t look at the support, bet on surpassing of the resistance, only then can the market stabilise. The index is making lower top and bottom on the weekly charts. The volatility is at 72 level, highest in 11 years. If it does not cool off, a 800-900 points movement on the Nifty on a daily basis will be the new normal,” Taparia said.
Vinay Pandit, Head – Institutional Equities at IndiaNivesh, said it’s all about what kind of hit one is expecting to see on Nifty earnings and what multiple investors are ready to give to the market.
“In the current scenario, it looks like investors are not willing to give a multiple of more than 11-13 times. Presuming that overall earnings for FY21 will be down by 20 per cent across the board, the bottom is somewhere between 6,800 and 8,000 for Nifty,” Pandit said.
At Friday’s close of 8,745, Nifty’s trailing 12-month PE stood at 19.72. In last five years, the PE has oscillated in the 18.6-29.9 range, with an average of 24.7.