Market Preparing for 50% Correction From Recent High ?

Sentiment around equity investment has taken an adverse turn lately. Though the Nifty has fallen 6 percent from the top, the pain of this fall is more than what this headline correction number shows. This is due to weakness in the already falling smallcap names since the beginning of this year, along with a sharp fall in certain pockets of the market.

So, is it time to buy as time of maximum pessimism is the best time to buy? We need to be very careful in picking stocks as wrong selection can be highly damaging. If you look at the market rally from 10600 to 11800 in just 2 months with the help bluechip names like Reliance, Tcs,Infosys,Bajaj Finance,Hdfc, Hdfc bank, Indusind bank, M&M, etc and other all nifty stocks correcting more than 20-30% so one has to understand the reasons behind this short term rally which is mutual funds are buying this few stock to maintain their portfolio strong and nifty positive to dump other weak stocks  at decent price and one of the most important thing is FII's and FPI's continuiously biggest seller in equity and debt market with problems like Trade war between US-china, rising crude price, weakning of rupee near 73 levels, Rising bond yields,Election overhang implies policy uncertainty, and latest IL&FS Default case.

Fallout evident post IL&FS default

2018 would witness the highest sell off in debt papers by foreigners since they started investing in the Indian debt market.

Post the IL&FS episode, there is talk of the credit cycle worsening, but credit deterioration has steadily been happening in India since the last 4-5 years. What we are witnessing right now is more of a cycle climax than the start of a new cycle. The problem at hand is more of a liquidity squeeze owing to asset liability duration mismatch.Overseas investors pulled out a massive Rs 21,000 crore (USD 3 billion) from the capital markets in September, making it the steepest outflow in four months, on widening current account deficit amid global trade tensions.

The latest withdrawal comes following a net infusion of close to Rs 5,200 crore in the capital markets (both equity and debt) last month and Rs 2,300 crore in July.

Prior to that, overseas investors had pulled out over Rs 61,000 crore during April-June.

According to the latest depository data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 10,825 crore from equities in September and Rs 10,198 crore from the debt market, taking the total to Rs 21,023 crore (USD 3 billion).This was the highest outflow since May, when FPIs had pulled out Rs 29,775 crore. FPIs never fully returned to the Indian equity markets after pulling out net assets worth Rs 61,000 crore during the quarter ended June 2018.

Although they net bought assets to the tune of Rs 7,500 crore cumulatively in July and August, the quantum of inflows was much lower than what was seen in the past when they invested with full conviction.This indicates that there has been a fair bit of uncertainty and cautiousness among FPIs investing in the Indian equity markets in the recent times.

The outflow in September was due to global trade tensions, widening current account deficit on the back of surge in oil prices, depreciating rupee, concerns over the government's ability to meet fiscal deficit targets and lower than expected GST collection.

"All these factors deteriorated the country's macro environment. It has also cast a doubt on the sustainability of the economic growth which is closely watched by the FPIs. This coupled with expensive valuation triggered a sell-off from FPIs in September.Additionally, given the global trade tensions, there has been risk-aversion among foreign investors which explains their cautious stance towards emerging markets like India, which are considered to be riskier than their developed counterparts.

So far this year, FPIs have pulled out over Rs 13,000 crore from equities and more than Rs 48,000 crore from the debt markets.

One interesting thing to note that in the last few days Stocks like DHFL,Yes bank,Infibeam etc. falling more than 40 to 70% in single day is the red alert for retail investors so i think if nifty trading below 10800 for few weeks then market can fall like 2008 recession from cmp 10930 in just few months towards 9500-7000-6000 too in panic selling. So Retail investors like us remain sideline from the market for some time is prudent decisions  because if nifty falls 30 % then midcaps and smallcaps stocks may fall more than 50% from cmp too, one can continue their SIP only in this uncertainity. I may be wrong also because Market is supreme no  one can predict it correctly. I have just share my opinion only for next 6-9 months so one can take their own call because i am not a expert/ SEBI registered research analyst, My formula  in stock market is " Prepare for the worst and hope for the Best ."

Link for Raghuram Rajan view on trade war :- https://www.livemint.com/Money/iTiF8eao5o6mIWE0tk87jO/Raghuram-Rajan-foreseer-of-Great-Recession-warns-of-toxic.html 

other useful video in hindi :-

source - Quint hindi :-