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Jayanta Mallick

THE stock market this week seems poised for a broad-based correction. The frontrunners of the 6-week long rally appear over-stretched. Now, it is to be seen how the operators handle the first major downward correction. It could be a sharp slide mid-week followed by a quick bounce-back or a phased decline continuing for a couple of weeks.

The indices took a small correction in their stride last week in the momentum of a strong rally backed by liquidity flow. The equities market, after the bottom-out last month, rode on several positive news.

The speculators and day-traders, who have so far guided the market direction, were euphoric on Friday on the lifting of the cloud over PSU disinvestment plans. In the approval for the sale of stake in HPCL and BPCL, the market saw the Government returning strongly to the second-generation reform process, overcoming the roadblocks erected from within.

However, until the participation gets broadened by substantial entry of institutions and retail investors, the base for a sustainable bull market perhaps would not be formed. Thus, the current buoyant sentiment is deceptive. It is also interesting to note that the present trading pattern, spawned by long bearish market, is largely dependent on the day-trading cult.

A large section of small investors have turned traders with a very short-term perspective. This band of investors is not driven by fundamental valuations, but largely by crowd psychology.

Seasoned analysts and market players were concerned about the market pangs during its transition to the bull phase, which seemed round the corner. "The day trading culture has made the market more sensitive to positive or negative news. The traders are susceptible to panic or euphoria. Hence the volatility. But as the bullish trend gradually sets in, things may turn different for the market with an all-round participation," felt Mr Abhay Aima, a market analyst.

According to him, the Union Disinvestment Minister Mr Shourie's formal announcement on the Government's agenda for the PSUs and the unfurling of ADS plan by Infosys are likely to move the market this week initially. "The sentiment has definitely turned positive. The short-lived corrections are expected ahead. But the timing and extent of the correction cannot possibly be predicted precisely," he added. In his opinion, the market's northward movement turned fairly well spread out among the sectors last week. The liquidity clearly improved with market psychology. "Money kept in the waiting during the long bear phase, despite cheap equity valuations, are flowing now from all corners — particularly less lucrative debt or commodity markets," he observed.

The retail investors have missed the current rally so far. "As their leveraging power is limited, caution has been the watch word. But institutions and fund managers are getting into the buying mode selectively," he added.

According to technical analyst Mr Vivek Mahajan, the market may open with an upward gap on Monday and surge ahead. "The Sensex could move up to 3,372 - 3,400 points, while the Nifty may go up to 1,100 points. The charts indicate that from these levels, the two indices may go in for a short-term reversal. This downward correction may push down the Nifty to around 1,030 points and the Sensex to 3,160," Mr Mahajan observed. He felt that the retail investors may do well to avoid the possible volatility of this week.

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