Small investors still hopeful of the bullrun to return - Spadan please comment on technicals

*From : Economic Times*

The biggest sign of a prolonged bear phase is when
investors<http://economictimes.indiatimes.com/Market_News/Small_investors_wont_...>are
unwilling to believe so," goes an old saying. This adage appears to be
relevant in the current environment, as retail investors — those who invest
directly in shares as well as through mutual funds — are trying to guess the
bottom of the bear phase.

These investors have been eager, loading up on shares being offloaded by
retreating foreign institutional investors (FIIs). But brokers caution that
most of these buyers are blind to the fact that falling share prices are a
reflection of worsening fundamentals. Previous instances of markets
rebounding to higher levels after sharp corrections, seem to have convinced
investors that a bullish phase immediately follows a bearish one.

A reason for such a conviction could be that many of these investors, in
the recent bull run, are young and have never seen the previous bearish
phases.

"Sentiment is bordering on the fear zone, but domestic household investors
are holding on to their equity investments, and in fact, are buying more
equities<http://economictimes.indiatimes.com/Market_News/Small_investors_wont_...>.
A market bottom needs outflows in domestic mutual funds," said Morgan
Stanley strategists Ridham Desai and Sheela Rathi, in a recent client note.

According to Sebi data, FIIs have net sold close to Rs 27,000 crore worth
of Indian shares so far this year while domestic institutions, including
mutual funds, have been net buyers worth Rs 9,500 crore.

So far, mutual funds have not seen any major outflow from their equity
schemes. In fact, fund houses claim there has been a pick-up in demand for
systematic investment plans (SIPs), which allow investors to buy units of
equity schemes on a monthly or quarterly basis, led by some aggressive
marketing initiatives. But many feel it would be too early for funds to
conclude that these products have been a success.

With the negative impact of high inflation, interest rates and a slowing
global economy are yet to reflect on India's growth, it does not come as a
surprise to many experienced hands that share prices have been declining
steadily for the past couple of months.

"The effect of inflation on the economy is always with a lag. Once the
weaker numbers start coming in, retail investors would panic," noted a
prominent broker, who has seen the previous bear phases.
Most brokers agree that, in case this in a bear market, the worst is yet to
come, as they feel investors are still "comfortable with equity as an asset
class".

HSBC, in its latest strategy note, has segregated a typical bear market
into six phases. It said Indian markets are still in the fourth phase, where
"investors start to play the game of anticipating where it will bottom and
the process of bottomspotting generally causes sharp rallies."

In the fifth phase, the investment bank said: "The bottom-spotting rallies
peter out, leaving even more investors depressed about the long-term future
of equity investment. Retail investors put their money in bank deposits,
institutional funds raise their cash holdings, and strategists talk about
this being the worst bear market for 50 years."

HSBC adds that a rebound follows the fifth phase, concluding "Indian
markets are far from this stage yet."