The SEBI measures to curb short selling will kick in from tomorrow, and market players feel it could provide a temporary floor for prices.
Indian shares may continue to seesaw this week, in the absence of any clear progress both globally and locally in the fight to contain the Coronavirus pandemic.
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The government today announced lockdown of 75 districts, underscoring the seriousness of the problem. This will weigh on sentiment as the resultant toll on economic activity will hurt the earnings of many industries.
The sentiment in global markets too will influence the broader trend. On Friday, major US indices crashed 4 percent, with the Dow Jones Industrial Average suffering its worst weekly loss since October 2008.
Last week, benchmark indices Sensex and Nifty shed 12 percent each, with financial services stocks being among the worst performers. Midcap stocks too were pummeled.
Traders and investors are hoping for a relief rally with the market having posted its fifth straight week of weekly losses. The SEBI measures to curb short selling will kick in from tomorrow, and market players feel it could provide a temporary floor for prices.
Key among the measures is one banning sales in futures and options beyond Rs 500 crore, unless the incremental sale positions are a hedge against shares held in the portfolio.
In addition, margins have been imposed on cash market trades as well. This could cut both ways as buyers too will have to put up margin ahead of purchases.
Players say the curb on short selling will be little help if investors continue to offload shares. If anything, the additional margins and short selling curbs will reduce liquidity in the market and add to volatility.
Most market experts are of the view that valuations are attractive, but nobody is willing to call a bottom yet.
Some players feel a 50-basis point cut in interest rates by the RBI could assuage sentiment temporarily. The RBI has drawn flak from a section of the market for not announcing any cut in interest rates yet.
Developments in the US money markets too will be watched closely as there are clear signs of stress emerging.
On Friday, the US Federal Reserve said it will lend money to banks at low rates, against short-term, highly rated municipal debt as collateral. This will encourage banks to buy local debt from money market mutual funds, in turn creating liquidity in securities that were becoming hard to trade because of the carnage in financial markets.