Nifty Gone with the Wind with 20%UC

By | May 18, 2009

Markets are unpredictable,Proved once again. UPA getting a clear mandate withotut left was game changer and the way in which the markets behaved on opening trade on Monday morning further reiterated this fact. If the UPA’s win was historic and exemplary then the opening trade of Dalal Street today morning was even more historic and once in a life time move to many including me. The markets have saluted the victory of the Congress with only circuit breakers! and people watching with Awe and there jaws dropping.

And what a circuit breaker! Earlier, the markets opened for some 30 seconds and it hit the upper circuit. BSE stated that it was up 1789.88 points when it opened for trading and the NSE opened 531 points up, soon after which it once again breached the second circuit limit. This led to the halt of trading for two hours and the market was scheduled to re-open for trading at 11.55 am. And then, when the market re-opened at 11.55am, within a few seconds, the BSE was up 2099 points and the Nifty was up 636 points and that was done for the day. Trading was halted for the day!

This has never happened in the history of the stock exchange. Circuit breaker was always on account of a market crash but today, it was frozen due to a rise! And halting trading for a day due to a surge is historic indeed! To a large extent, this would seem like an anti climax; it’s like everyone was waiting to buy and but could not even put their buys onto the exchange.

As per the rules of the exchange, the circuit breaker system is applied at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. In case of a 10% movement, there would be a one-hour market halt if the movement takes place before 13:00 IST. In case the movement takes place at or after 13:00 IST, but before 14:30 IST. there would be trading halt for ½ hour. In case movement takes place at or after 14:30 IST there will be no trading halt at the 10% level and market shall continue trading.

In case of a 15% movement, there will be a two-hour halt if the movement takes place before 1 p.m. And if this 15% trigger is reached on or after 13:00 IST but before 14:00 IST, there shall be a one-hour halt. If the 15% trigger is reached on or after 14:00 IST the trading shall halt for remainder of the day. In case of a 20% movement of the index, trading will be halted for the remainder of the day.

Celebrating the victory is also the Indian rupee which is currently trading at Rs.47.93 a US dollar.

It was expected that the markets would open for trading on a highly bullish note but no one had expected this kind of euphoria. This unprecedented win of the UPA is probably the market turner – from a complete bearish market it is now become a bullish market. What has happened is that people have been living in a pessimistic environment for a very long time and any good news is like a drowning man clutching at the straw for support. This political win is not a straw, it is a complete bark of wood, which could take one to the shores safely.

If one looks beyond the UPA win, the fundamentals of India’s economy and the world economy remains the same. One has to take a bullish but cautious approach to the markets now. No need to rush in to book profits as the bull charge has not even got down to the mid caps. There is a lot of money waiting to come to the market, so stay invested for now.

All eyes will now be on the new Govt which is expected to be sworn in on Friday and the event to look forward to will be the Union Budget. Till then, the rally is expected to remain bullish. But remember, once this euphoria settles down, one will start looking at individual stocks and maybe at that juncture, our market valuations would seem expensive. So tread with caution once the party is over and the hangover sets in.

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