Sensex falls nearly 2,000 points for nine straight sessions; is this the right time to buy, sell or hold stocks?

Jitters over the outcome of Lok Sabha election, ongoing US-China trade tensions, decline in economic indicators such as factory output and core sector growth, weakness in high-frequency indicators such as auto sales, and credit crunch in non-banking financial companies (NBFCs) led Sensex to log its fourth nine-day losing streak ever in the history of Indian financial markets.

On Monday, Sensex closed 372 points or 0.99 per cent lower at 37,090 equalling its nine session losing streak in February this year.

Sensex has lost 1,977 points or 5.06% since April 26 when it closed at 39,067 points. Investors lost Rs 8.53 lakh crore in market capitalisation during the period with the country slipping one slot on the world's most valuable markets list. 

On the other hand, Nifty lost over 600 points or 5.2% in the past nine sessions- its longest losing streak since May 2011.

Foreign investors have given a big thumbs down to Indian market in May.

Investor wealth tumbles by Rs 8.53 lakh crore in 9 trading sessions

They have withdrawn Rs 2,554 crore till date making it the next worst month after January 2019 when Rs 5,358 crore was withdrawn from Indian markets. In February (Rs 12,052 crore), March (Rs 48,750 crore) and April (Rs 16,727 crore), FIIs poured in Rs 77,529 crore funds into Indian markets.

The fall assumes significance since it comes nearly a week ahead of Lok Sabha election results.

Investors are in a tizzy whether to buy, sell or hold stocks for their portfolios.

Jyoti Roy, Equity Strategist (DVP) at Angel Broking said, "Recent fall in markets has been on account of multiple factors including a slowdown in the domestic economy in the aftermath of the IL&FS crisis and its impact on the NBFC sector. The slowdown is very much reflected in high frequency data points like auto sales numbers and IIP growth which have slowed down to 0.8% for the period between November 2018 to March 2019 as compared to average growth of 5.7% between April-October 2018.

Recent escalation in trade war between US and China has also led to turmoil in global markets which has further contributed to volatility in Indian equities. We expect the volatility to continue going into the final phase of the general elections. With recent fall in the markets, we do not see any real justification for any sharp correction post the election results, except in the unlikely event of an extremely fragile coalition government. The markets should be pleased as long as it is relatively stable government and assures continuity of the reforms process.

We therefore feel that any volatility in the run-up to the election results should be used as an opportunity to buy into the markets especially in the mid cap space where valuations have become reasonable after a long time. Post elections, we expect focus to shift to macros which are expected to improve over the next couple of quarters given low inflation levels which would allow the RBI to cut rates by another 50-75bps over the current financial year."

Adding to the weaker market sentiment, Corporate Affairs Secretary Injeti Srinivas has said there is an "imminent crisis" in the non-banking financial companies sector as misadventures by some large entities and credit squeeze present a perfect recipe for disaster. In recent months, the country's financial system has been grappling with multiple woes in the wake of the turmoil at diversified IL&FS group as well as debt defaults by some other large entities.

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Sunil Sharma, Chief Investment Officer at Sanctum Wealth Management said, "Apart from global concerns, Indian markets are also worried about the liquidity crunch on the ground affecting both, investments and consumption in the country." He further said that a positive election outcome could turn sentiment around, create capital inflows and drive markets higher.

VK Vijayakumar, Chief Investment Strategist at Geojit said," The market is not yet attractively valued to merit aggressive buying. However, investors can start nibbling at quality stocks. The crucial factor determining the trend of the market in the coming days would be the election outcome. If the NDA comes back to power, there will be a sharp rally in the market. On the other hand, if the mandate is badly fractured, a sharp sell-off will ensue. Investors can take a call depending on their perception of the outcome.

However, the long-term impact of the election outcome would be minimal. Therefore, long-term investors can buy quality stocks for the long-term without bothering about the short-term volatility."

Rahul Agarwal, Director Wealth Discovery/EZ Wealth said, " This massive correction has created a window of opportunity for value investors, as a lot of blue chip stocks are now available at steep discounts. The run-up to the election results would be extremely volatile due to a combination of global as well as domestic factors. The market seems to have priced in the chances of a NDA government but BJP on its own forming the government or BJP failing to get majority are two outcomes that can lead to wild gyrations on either side. In our opinion for people who have tolerance for risk and are already invested, there is no reason to cash out at this point. Investors who have been waiting for a long time to get in perhaps can enter the markets at these levels in steps. For risk-averse investors, it is advisable to wait for the outcome of the general elections before initiating any new positions."

Rajeev Srivastava, Head Retail Broking at Reliance Securities said, "We strongly believe that the current sell-off in Indian equities is just a near-term phenomenon, and we feel it is likely to provide opportunity once again for the investors to take fresh positions in quality stocks at attractive valuations with healthy margins of safety. We usually see that most investors fail to earn early profits, when market bounces back after a sharp correction. Hence, we advise them to make disciplined and informed investment in equities through a mix of SIPs and direct investment in quality stocks".

Mustafa Nadeem, CEO at Epic Research said, "Currently, the market is driven by volatility. At present, one must understand that the volatility is at its highest levels in the last 5 years. We have got Lok Sabha elections results coming in a matter of few days. The global market is already seeing some signs of weakness on the back of profit booking and escalating trade war and tensions between the US and China.  All this has made the sentiments rather much complicated than just fear. When there is volatility that is inherent in the movement, then we may see some fear/ panic and all those traps and biases. Whether it is time to buy or sell or hold is altogether a perspective one has for the market.

Usually, we have seen a trend that emerges post-election if there is a decisive mandate. That being said, one should understand it is 9 days of fall consecutively. The damage is done. There is a distribution that is seen. A double top is also visible. Technically, we believe this cycle to move much lower from here and test lower levels. 11050 - 11100 are short term support. If the market is slipping below it, then the cuts may be deeper. 

We are in a long term bullish market. So we may see fresh money coming in at lower levels but we also believe these dips can be justified in terms of percentage, say, more than 10% and less than 15%. So investors who want to buy for long term or accumulate in existing folio must look at numbers like 10,200 - 10,300."

This is not the first instance when Sensex fell for nine straight sessions. In February this year, Sensex fell for nine consecutive sessions and lost 4.39%. From February 6, 2019 to February 19, 2019, the index lost 1,219 points or 4.39%.   

In 2011 too, Sensex logged a nine-session losing streak when it lost 7.1% or 1392 points from April 25, 2011 to May 5, 2011.

In 2001, Sensex logged its first nine-session losing streak when it fell 17.03% or 578 points from September 5, 2001 to September 17, 2011.