Markets saw the biggest single day drop of 2017. The ferocious selling took markets by surprise on Friday with the Nifty falling a huge 148 points. Here are 4 reasons why you should sell stocks, at every rally next week.
Stop losses get triggered
Lots of short covering is likely to have been triggered at 10,000 points on the Nifty. If the Nifty remains below 10,000 points, it is likely to seek support at 9,930 points. If this is broken there is a high possibility that 9,900 could be taken out on the Nifty.
There could be fresh shorts that could be triggered leading to another down slide. Also, the markets closed at their lowest levels, which always indicates a bearish trend with little buying interest even at lower levels.
Economic package may lead to another downslide
Finance Ministry Arun Jaitley had hinted at fresh measures to stimulate the economy.
Markets are weary that a fresh package for revival of the economy could be a dampener. This is because there is a belief that this could lead to the fiscal deficit rising even further. The government had pegged the fiscal deficit at 3.2 per cent for 2017-18. Lack of maintaining the fiscal deficit is largely looked down as negative, also because rating agencies may find it difficult to then upgrade India's Sovereign credit rating.
Also, it can be inflationary in nature, which means that the RBI may not cut interest rates any further.
FPIs are likely to continue selling
Foreign Portfolio Investors just seem to be dumping stocks. On Thursday and Friday, they net sold in the cash markets almost to the tune of Rs 3,000 crores.
While domestic institutions seem to have so far absorbed all the selling from FPIs, one has to see how much selling the FPIs resort to. Hence it is advisable to stay away from FPI heavy counters.
On Friday, domestic institutions were unable to absorb the large scale selling from FPIs. The trend is likely yo persist as some of these large investors believe that Indian markets are overvalued.
Fed shrinking balance sheet
The US Fed is looking at shrinking the size of its balance sheet. For years, global stock markets, including Indian were flush with easy liquidity conditions from abroad. When this dries-up, one is likely to see fresh selling BY FPIs in emerging markets.
Also, another interest rate hike from the US Fed is possible in December, 2017. Naturally, money is likely to move from equity to debt, with interest rates higher.
On the other hand, the interest rate cut cycle in India also seems to be almost over, as inflation is rearing its head. With the government's fiscal expansion plan, inflation is likely to rise and hence interest rates.
Korean issues may trigger fresh selling
Just when you thought that the Korean issue was dying, it keeps staying alive. This is likely to continue to rattle markets and lead to fresh selling pressure. It is hence advisable to stay away until issues are resolved.
All in all, at the moment the only way to make money is to buy low and sell high. Markets are at peak levels, hence, chances of making money now, look remote.