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Where is the bottom?

After the Sensex closed at below 14000 levels this week, everyone is wondering where the bottom is. If crude continues its upward journey, reports indicate that the Sensex could well fall to 12000.

It's the same story again. The first two days of the week saw the bulls getting thrashed. They managed to regain some ground on Wednesday and Thursday. But by Friday there was blood on the street again. The Sensex ended the week below the 14,000 level to close at 13802.22. The Nifty closed at 4136.65.

There was a lot that happened this week. For one, it was a derivative settlement week. In what seemed to be a desperate political move to rein in inflation, the RBI hiked both the repo rate and the CRR by half a percentage point each. The heated political environment is also not making life any better for the bulls. Overall the bias remained negative, in the wake of the worsening global as well as local factors. Nothing it going to change unless crude oil (and local inflation) cools off sharply and FIIs turn net buyers.

The volatility even surfaced during intra-day trades. On Monday, the market nosedived in the morning but picked up in the afternoon. But, the momentum was short lived with a sudden bout of selling in the index heavyweights like Reliance Industries, Infosys and Tata Steel. Among the 50 Nifty stocks, 38 ended in negative terrain. Reliance Industries fell to its lowest since September 12. The scrip dropped to a low of Rs 1,984 before closing at Rs 2022.

On Tuesday, a highly volatile session ended in negative terrain for the fifth straight day. The fall could be attributed to heavy selling in index heavyweights like Infosys, L&T and Tata Steel. This time Reliance Industries bucked the negative trend along with HDFC and BHEL. Among the Nifty stocks, 41 ended in negative terrain. The BSE Metal index was the biggest loser, followed by BSE PSU, BSE FMCG and BSE IT.

Though the market snapped its losing streak on Wednesday and Thursday, it was not a reverse of sentiment, as Friday's fall would testify.

High inflation is leading to higher interest rate. Commodity and crude prices are rising resulting in higher input costs. Access to capital is becoming difficult whether it is equity or debt. A CLSA report stated that further rise in oil prices will continue to be particularly bad news for India. The report also stated that a re-test of 12000 Sensex levels cannot be ruled out.