Financial Daily from THE HINDU group of publications
Friday, Sep 23, 2005
Markets - Stock Markets
`Market fall a welcome shake-out'
ALL LOST: A trader looks at a trading chart as stock prices fell like ninepins. Almost 95 per cent of stocks traded on Thursday fell due to panic selling on fears of IT raids. - Shashi Ashiwal
Chennai , Sept 22
EQUITY analysts and market strategists described the 265-point crash in the Sensex on Thursday as "long overdue", "inevitable", and "a welcome shakeout".
Mr Parag Parikh, Chairman of the Mumbai-based Parag Parikh Financial Advisory Services, saw no cause for alarm in the fall, the biggest in a day since Black Monday of May 17, 2004.
"At 8,000 points, when we were all smiling, I see no reason for long faces when the Sensex is at 8,200," he said.
"This is a typical market story; when the market is going up, the investors come together in large numbers to buy. Today, everybody came together to sell. Such a correction was needed and has come."
He added: "Wise investors who were either sitting on cash or had bought fundamentally good stocks have no cause for worry. It is the people in the penny stocks - they are not investors but speculators - who have been caught on the wrong foot. If you speculate in the market, then you have to pay a price for it sooner than later."
Mr Sandeep Shenoy, Strategist at Pioneer Intermediaries Pvt Ltd, who has been cautioning investors for some time to beware of the speculative euphoria building up in penny stocks, welcomed the steep fall as a "good pressure release in a market that had been overbought. Another 200-250 point fall should not worry investors who are invested in top-rung companies because fundamentally nothing has changed for the good companies."
He said that the correction was triggered by the tightening of norms on the margins front as well as investigations by the SEBI and other Government agencies on the movement of penny stocks in the last couple of weeks.
"This resulted in unwinding of positions by the operations. But the fundamentals of the India story have not changed; only the valuations had gone ahead of fundamentals. I believe that the third-quarter results will assuage the fears of investors."
As for the FIIs, Mr Shenoy said: "They would have got in the last two days both the price opportunity and the quality opportunity that they always look out for."
Mr Arun Kejriwal, Director of KRIS, described the fall as "inevitable and a welcome shakeout from which good is bound to come, though one doesn't know the timeframe."
Commenting on the speculative bubble that had built up on the penny stocks, he said that once again it was the "same old story of greed and fear driving investor sentiment. People wanted to make a huge fortune out of penny stocks; whereas you actually require quality stocks to create wealth."
He added that after a heady rise of 1,500-2,000 points, there was no harm if the Sensex shed 500 points. "The market is bound to bounce back for those who are invested in quality; but for those holding kachhra stocks, there is going to be no tomorrow."
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