Why the drop?
When you enter into a new year in a state of exuberance that is unfounded, chances are bright that you would be disappointed. Marketmen had built huge positions towards the end of 2013, on hopes that money from foreign institutional investors (FIIs) would be pouring in.
Nothing of that sought has happened and in fact, FIIs on some days have been net sellers. On Monday they have been net sellers to the tune of Rs 318 crores, according to figures released by the National Stock Exchange. On Tuesday they net sold in the cash market in excess of Rs 500 crores.
Secondly, foreign funds and domestic brokerages have been giving irrational Sensex targets like 24,000 points by the end of the year. They fail to understand that for the markets have to rally 20 per cent from here, earnings and domestic growth revival has to catch up.
Nothing of that sort seems to be happening. The services data which was released on Monday, was worse then expected and dashed any hopes of economic revival.
In fact, most of the brokerages have set targets of 23,000 points and 24,000 points on the Sensex. Markets tend to always behave exactly the opposite of consensus estimates and if you see how the markets have begun the year, it will not be a surprise if the markets end lower then what they are currently traded at.
Merely speculating on the hopes of a Modi led NDA government may not be appropriate, since any new government would need time to push for reforms. So, let's hope that the market ends higher at least in the near term.