Stock prices likely to bounce back

No need for panic; though slow, economy on path of recovery

Although, the stock markets have reached their life-time high during muhurat trading, but could not keep up the same pace, mainly because of increased selling in the form of profit-taking that transpired mainly due to the weakening of Indian currency, increasing fears of US tapering of the stimulus programme and increased inflation numbers announced last week.

The first seven trading days of the new Vikram Samvat 2070 were marked with a sustained erosion in stock prices irrespective of their catagories and segments or classifications. The BSE Sensex which had scaled to a life-time high of 21322 on November 3, came crashing down to touch a low of 20162 as on November 13, thus losing 1160 points in just seven trading sessions after the muhurat trading.

It was on Thursday, the last trading day of the last week, that the markets could breath a sigh of relief as they staged a small rally following positive statements by both Janet Yellen, the nominee chief of the US Federal Reserve and Raghuram Rajan, the governor of the Reserve Bank of India.

Sensex which had closed last week at 20666 as on the last trading day of the previous week, opened lower at 20596 on Monday and staged a small rally that lifted it up to a high of 20673 on the very first day of trading. But fears of early tapering of the US stimulus programme and fresh weakness in the Indian currency against the green-back did not allow the markets go further up and instead, they started going down once again to reach the week's lowest of 20162 by Wednesday itself as the inflation numbers announced by government turned out to be negative for the markets. By Wednesday, Sensex had lost 1160 points from its life time peak.

Trading on Thursday, however, brought positive surprise for day traders in the markets as the prices of most of the stocks offered for trading opened much higher than their preceding day's closing. They also made progress in northward direction as the time passed and so did the Sensex. It opened at 20351 against its previous day's closing of 20194 and scaled to the day's high of 20569 before entering a correction mode as the bull operators themselves preferred to off-load a part of their long positions in view of the three-day-long week-end due to a market holiday on Friday and also on fresh fears of rate hike in December.

Janet Yellen, Obama's nominee to head the Federal Reserve, on Wedensday said that the US stimulus programme would continue until the economy is improved. The statement inspired fresh wave of buoyancy in the early trade on Thursday in stock markets. RBI governor Raghuram Rajan also came to the rescue of stock markets when he said on Wednesday in a hurriedly called press conference that the current account deficit would be as low as $56 billion, well under 3 per cent of the GDP and certainly much lower than the 4.8 per cent of GDP of last year.

However, the last day's early gains were pared when the wholesale price inflation numbers for October turned out to be at eight months high that triggered fresh fears of an interest rate hike in December when RBI to announce its monetary policy.

In all the probabilities, it is most likely that inflation at both wholesale and retail levels is going to ease now that the new season for agricultural produce is about to start including those of onions and other vegetables and perishable goods that were the main cause of the higher inflation rates in the by-gone months. While reviewing the next monetary policy in December, the Reserve Bank of India may leave the past wories in the past and look forward to easening price situation. The industrial growth is also picking up, though at a lower pace as announced in the last week.

It is therefore, most likely that the last week's bottoms in indivdual stocks and indices may hold for some time and prices may go up on favourable announcements either by the authorities or by the corporates or both. The news will be positive from now onwards from all fronts, it looks. And when the news is good, prices of stocks can not be expected to rule weak for long. They would go up albeit at a lower pace initially and faster pace if a political change is hinted at from the state assembly elections that are already under the process of voting.

Those stock market investors who are feeling trapped into buying of stocks at higher price levels on muhurat day and prior to that need not sell them out of fears of further downtrend as prices are most likely to bounce back sooner or later as the economy under the regime of Raghuram Rajan is on a slow but sure path of recovery. Instead, investors must not miss the opportunity to buy more if the prices went down for any reason. Ultimately the success in the stock market investing comes when one buys at lower prices.