Analysts see further correction

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MP Guru
Analysts see further correction

The sharp fall in shares revived memories of the bear phase during May-June but experts said there was no reason to panic and the fall had provided buying opportunities to investors. The Sensex could see another 200-point drop, they said.

“The market was definitely over-valued. It had to come down to maintain its attractiveness,” said the research head of a stock broking firm owned by a public sector bank.

All banking stocks ended in the red on Monday with an average fall of over 6.5 per cent. The State Bank of India scrip lost more than 8 per cent.

“There is concern over the rising dollar, which may hamper the objectives of monetary policy, hurting exports. At recent levels, the market was expensive. These valuations will have to be made more realistic to maintain the good movement,” the analyst said, hoping the correction would prove to be good for the market in the long term.

The market had witnessed similar movements in May-June, when the correction started after the Sensex had hit its then all-time high of 12,612.38 on May 10.

The very next day the index went down by 177.14 points and continued the southward movement till it lost nearly 40 per cent to 8,929.44 points on June 14, in 25 trading days.

However, this time analysts are not sticking their neck out on to what level the correction will continue.

“Valuations were stiff during the May fall. Corporate performance has been good and foreign institutional investor flows robust in both cases. Inflation remains a major cause of worry,” said Nikhil Thacker, head of research of UTI Securities Ltd. “It (the Sensex) could go down a couple of hundred points.”

A fund manager of a recently launched mid-cap fund saw Monday’s correction as driven by profit booking and selling by FIIs. “Fundamentally, nothing has gone wrong,” he said.

About rumours of manipulative practices by certain section of investors, he said: “India has the best regulated market. Normally, a scam is feared when valuations are 26-30 times. That is not the case. Despite the concern over market valuations, we do not see any reason to worry.”
 
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