Sensex may hit new low, post elections

April 16th, 2009

Summer looms as a critical period for the local markets due to the political uncertainty following the general elections. In May 2004, the market collapsed almost 30 per cent post elections, when Sonia Gandhi was chosen to lead the congress parliamentary party amid fall of the NDA. This time, the general perception is that the “third front” will emerge as king maker. If that happens, it may ensure the end of the pre-election market rally and bring about a new low thereafter.

Technical analysts say that the current bounce back is being seen as a bear market rally that will be very difficult to sustain even otherwise.  Although the recent gains in stock prices brought some cheer with a 30 per cent appreciation in global benchmark indices, the market is still not out of the woods. Corporate earnings for the fourth quarter may be worse than the third quarter and the guidance for 2009-10 by Infosys Technologies also indicates that corporate outlook may not even in 2009-10.

The bear markets prior to 2000 have recorded eight counter-trend rallies in excess of 15 per cent while the most recent 2000-02 bear market saw three counter-trend rallies of 20 per cent. The current bounce is just the third in excess of 20 per cent since May 2008.

Historically, it is to be noted that in the secular bear market in US commencing 1937, a 64 per cent counter-trend rally ensued the following year before the market eventually took out new lows, indicates Deutsche Bank Global Research.

The current counter-trend is in excess of 38 per cent since the benchmark indices, the Sensex and the Nifty, hit multiyear lows on March 9, 2009. It is also worth mentioning that counter-trend in excess of 24 per cent between October 27, 2008 and November 10, 2008 took more than three months for the October 27 low to be breached. If this pattern persists, a retest of the recent low of 8,160 in the Sensex may occur after the election results if the “third front” become king maker. may hit new low, post elections digg:Sensex may hit new low, post elections newsvine:Sensex may hit new low, post elections reddit:Sensex may hit new low, post elections Y!:Sensex may hit new low, post elections