WF: How far do you see this correction going? What are you advising your clients to do now?

Mukesh: We have seen a good run up from around 8,000 to around 17,500. We were expecting a bounce till 14,500 when we gave a buy call to our clients at 9,000. Then, as the things went on improving, we revised our target to 16,500. Post 16,000 levels, we have been quiet cautious, and have been booking profits from 16,000 levels upto 17,500 levels for our clients.

Artificially propped up

Markets cannot go ahead in one direction. We have been feeling that a lot of the improvement was more artificially created because of the stimulus packages and the stimulus packages cannot go relentlessly because that puts pressure on the fiscal deficit and then the currency and interest rates. Lot of people have been warning about this as well. So we were quiet sure that the stimulus has to stop or at least slow down and if that happens given that the fact that the market already run up in fact more than 100% so the time has definetly come to be cautious, we were also looking at inflation rising, we are also expecting the CRR and interest rate hikes. We have seen the top line of companies not growing that much - if you see the performance of the companies the bottom line has grown, that was because of the lower commodities prices and low interest rates. Now, commodity prices have doubled and interest rates are also on the rise. This does not give you confidence.

When in doubt, get out

So we felt that there are sizeable risks in the market. We have a principle : When in doubt, get out.

For clients for whom we do financial planning, we ask them to regularly rebalance their portfolio based on our agreed asset allocation. But for clients who want to time the market, we definitely had our view that it is better to move out and if at all you want to be into the equity markets move into the defensive sector like FMCG and pharma.

Short term = technicals; medium term = sentiment; long term = fundamentals

One should understand that markets are driven by different factors over different time horizons. In the short term, technicals matter most, medium term is governed more by the sentiment in the market and long term trends are definitely governed by the underlying fundamentals. Depending on the time horizon your client has in mind, you need to understand each of these factors and advice him accordingly.

Dollar is the key to all markets

Though in the long term people most probably do not have a doubt that the dollar will weaken, but in the short term to medium term, we felt that it was already over sold and there was a case for it to improve. I am not talking only about the USD -INR, I am talking about the dollar index. We have been watching dollar index continuously and we felt that it is due for a sharp bounce upwards. The reasons for the bounce can be attributed by markets to many factors - Obama stopping prop books etc but technically, it was due for a bounce.

We believe that technically, the dollar index, which bottomed around 75 a few weeks back and has rallied to around 78.5 levels now, can go all the way up to 90 levels in 2010. If this happens, there can be sizeable downsides to equity markets, emerging market stocks, precious metals and commodities.

WF: How far down do you think the Sensex can go to?

Don't miss this buying opportunity

I've told my clients that if there are any more surprises like Dubai that come out, supports can be breached. Can the market weaken like 2008? Unlikely - but you can't rule anything out. But the point is, to keep buying on dips, once you reach the 14,500 levels. Then, it doesn't matter what exactly will be the bottom - just keep buying on dips. Overreactions on both sides is a characteristic of the market - you have to learn to live with it. If you missed the bus the last time, don't miss it in this downturn. It will be a buying opportunity of a lifetime. Investments made on this downleg below the 14,500 levels can triple over the next 3 years.

India : slow and steady wins the race

I would urge everybody to be aggressive, we have recently seen one of the worst economic crisis and we saw how India has been able to grow stronger. I think whatever be the disadvantages over India, again it has been proved that slow and steady wins the race. I think we should be very much elated and feel ourselves very lucky that we are in India.

I would myself increase my allocation to equity once this fall happens, whatever maybe the fall, I am just going to invest on every dip, starting from 14,500.

WF: What is your outlook on gold?

Mukesh: I am bearish from a short and medium term perspective. If the dollar index can go as high as 90, gold can actually fall from the current level of US$ 1085 all the way down to the US$ 650 - 700 range. From a rupee value perspective, the fall may not be that steep - perhaps it can go down to Rs. 12,000 because the rupee is likely to fall against the dollar.

I know I am sticking my neck out with all these projections. Yes, we did get our calls right when we asked clients to exit close to 20,000 and then again asked them to enter at 9,000. All I can say is that I am a student of technical analysis and I project what the charts show - without getting any sentiment into the picture. Also, I know that when your calls go right, you must consider yourself damn lucky!