The Hindu Business Line : `Not enough impetus for FII flow'

THE secondary market last week was tossed between hope and despair. The general impression among the market players was that the volatility-induced fatigue had not only been telling on the indices, but also on the business volumes. The opinions, however, varied on the outlook for this week.

A section of brokers and analysts felt the market had reached its bottom and the strong Sensex support level around 2,900 will hold. However, some of the market players seemed wary of prolonged bearishness, as significant bargain hunting at lower levels has not emerged yet.

"Market needs fresh money, which is not forthcoming either from institutions or from large-scale retail participation. Big bull operators are on the sidelines and licking their wounds. In such a situation, one can hope for stability and consolidation," observed Mr Ajit Day of Dayco Securities.

According to Abhay Aima, a market analyst, the perception that UTI is a continuous seller because of redemption pressure, has been acting as a major dampener for the market spirit.

"Added to this was selling of shares by Jardine Fleming. The Sensex heavyweights — Hindustan Lever and Reliance Industries — declined under selling pressure last week and so did the Sensex", Mr Arun Kejriwal, market analyst, pointed out.

Mr Aima felt that the perception over monsoon despair and extent of damage to the economy was clouded by political dust already raised on the subject. The recovery story, particularly in the old economy sector, had been drowned in the din over the ripple effect of the balance sheet blues at home and abroad, he added.

The FIIs, hit by a drop in market capitalisation in the US market, are playing shy in the emerging market in the short-term. However, in the long-term, they are likely to turn towards markets such as India. According to Mr John Band, an independent analyst, the current Indian market conditions do not provide enough impetus for significant fund flow.

Mr Day felt the political imbroglio over various issues — as diverse as petrol pump dealership and divestment of PSUs — had been sending out wrong signals to the investing community.

Market observers were unanimous that any positive news from the disinvestment front or salvation of UTI through strategic sale of its holding in blue chips such as ITC or Larsen & Toubro may liven up the market as a whole.

Mr Aima said the usual selling in small doses by the largest mutual fund would not, however, improve the valuation. "The strategic sale is the answer. There would be takers willing to pay up even 100 per cent premium in such a situation," Mr Aima added.

Mr Vivek Mahajan, a broker-analyst, struck a positive chord over the emerging trend this week. According to him, the technical charts for the major indices showed signs of a possible trend reversal this week.

"The crucial sentiment indicator — the advance/decline line in relation to the all important indices clearly showed a positive divergence. This means that a major bottom might have been formed already," Mr Mahajan observed.

In the past, the relationship between the indices or a particular index and the advance/decline line had proved to be a very potent tool for predicting a trend, he said.

"During the period between May 21 and 23 the positive divergence between CNX S&P 500 and the advance/decline line showed flare-up in mid-cap stocks and the rally continued till the first week of July. This was an recent example of the potency of the combination," Mr Mahajan maintained.

He foresaw a smart rally this week in tech and bank stocks. "A bull phase is possibly knocking at the market door. Short- selling may be suicidal. The retail investors should not panic during occasional dips in the short-term as the market is likely to move up in a phased manner," he added.

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