The Capitulation of Bulls??

4:13 PM 26 February 2021

They said the Bears are coming. They said Bulls can't sustain. They said the market is ripe for a correction as there has been a spate of Overvaluations across the board. But the Bulls just shrugged and carried on!

And then came the Freaky Friday of February!

Nifty fell a whopping 568 (-3.76%) points in what seemed like a free fall! Its worst fall since 18th May 2020. Nifty Bank saw 1,745 points erased as it closed at 34,803 (-4.78%). As it can be clearly seen the Banks did most of the damage. Since most of the Banks are star contributors to both Nifty 50 and BSE Sensex, it's only fair to lay the blame at the Bank's door.

Not to be left behind, Sensex saw its worst too since May 2020. It fell 1,939 points to close at 49,099 (-3.8%). The 30 pack Index saw all of its Stocks in stark dark Red. Its major contributors and star performers like RIL, ICICI, HDFC Bank, HDFC and SBI all shed 4-5% in a day! The biggest loser being M&M which made the investors poorer by 6.35%. This sort of mayhem is seldom seen on a normal day.

Investors lost a gut wrenching Rs. 5.4 Lakh Crore in a matter of few hours. If the Investors were left helpless on 24th February 2021 due to a NSE Glitch, this Friday saw them defenseless against today's bloodbath. The Market lost a whopping 50% of gains which it had seen post Budget. BSE listed companies wiped off almost 6 Lakh Crore of Market Capital. Most of the Indices closed lower. India Vix rose to a 4 month high of 23%.

The reasons could be multiple. Perhaps the Bulls were showing exhaustion and were thinking of some much needed rest as the Bull run continued for quite a bit now and also we were due a major correction as a consequence of the former. But right now two major events happened far across the oceans and on the soil of USA.

Firstly the US Bond Yields have raised significantly as compared to last year. A large number of US Bonds got sold. A typical 10-year US Treasury bond rose as much as 0.23% percentage and crossed 1.5% for the first time in 12 months. And the 5-year bond advanced to 0.82% climbing 0.21%. Bond investors saw this a sign of economic expansion and related inflation. Some even feared an economic stimuli from the Biden administration to soothe the post Covid economy, as now both the houses are controlled by the Democrats. And when money moves from safer havens of Bonds to riskier equities - as is evident from a global market rally trying to recoup losses from Coivd lockdown - the investors dumped Equities and bought heavily into Bonds which already saw a major increase in its yield rate. And when a violent sell off of this sort happens, the stock prices come down with a resounding thud! S&P 500 was immediately down 2.5% and Nasdaq suffered a major 3.5% loss. Dow Jones shed almost 560 (-1.75%) points.

And when the US stock market goes down, it takes Global markets down in a ripple effect. And how could India not be affected!

The second reason for the free fall also comes from the soil of USA! In a major strike against the Iranian backed militia in Syria, the US carried out an air strike and bombed Syria in response to rocket attacks on American forces. This too spread fear among the traders and they rushed to book profits on expectations of US markets reacting to the air strike.

Does this mean the end of a fantastic Bull run?? Or do we see some normalcy as we resume on Monday? According to Ajay Shrivastava, (Managing Director, Dimensions) considered to be a pioneer in Corporate and Financial restructuring, there is nothing to worry! He in fact says "instead of selling or shorting, this is the time to buy all those stocks which you always wanted to buy". In fact he goes on to recommend key financial stocks like ICICI Bank.

Even as experts try to allay fears amongst the traders, only the dawn of Monday will decide what the Markets are in store for. Bulls or Bears? Your call!