In my blog yesterday, I was referring to a silent correction in the broader market even though the Nifty was making a new high. By the end of trade yesterday, it was no longer silent, as the broader market saw a sharp correction -- six stocks declining for every advancing stock. In fact, curiously, August has been a bad month for portfolio investors as the advance/decline has been consistently poor while Nifty has made a new high. Compare this to July where the index was flat but midcaps consistently outperformed.
This morning, there is a dichotomy for the bulls. The global risk-on seems to be back again, led by the US and the infrastructure bill passage. In fact the US steel index is up nearly 7 percent which means there could be some gains for high beta metals sector back in India as well. The dollar index is stable at 93 and Brent crude in line with other commodities has surged to nearly $71/bbl. But, the domestic sentiment must have taken a hit after yesterday’s decline in midcaps and small caps.
So how to approach this phase? Well, there is a saying in the market that "you have to be in the game to win it". Right now, the market has given enough warnings that if you don’t play carefully, it will take you out of the game. Perhaps time has come to give more weight to capital preservation than seeking more incremental gains, especially in broader market. Without a doubt, this is a bull market and things will resolve on the upside. But before that, will the market see a violent shakeout? Who knows? The small cap index has already corrected 5 percent from peak and if it falls another 10-15 percent, which is not outside the realms of reality, many retailers will be out for good. One must avoid being in that pack.
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