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As global pressure increases on equities — Indices may suffer amid volatility

Jayanta Mallick

A fire-fighting effort by the government regarding inflation is on the cards. But the impact of it may not be felt much on the ground until the broad picture turns positive.

THE sudden spurt in inflation rate, flare-up in global crude oil price, floods in some parts of the country and lack of rain in some other regions seem to have prepared a lethal concoction for the equities market this week.

Volatility is likely to increase and the key indices may come under pressure. Unlike the world's costliest cocktail, which contains a pricy 61/2 carat tourmaline and a diamond ring, this one may not spring a surprise. Though the technical analysts are indicating a few early support levels in the key indices, these may prove elusive.

Last week, the BSE Sensex added on a modest score of 26.5 points. It gained on two sessions and lost on three, making it more or less an even affair. The mid-cap stocks continued to perform well. The FII investment trend suggested a mixture of profit taking and churning strategy. Though they were net positive in their investments last week, the domestic mutual funds continued to be net negative investors. Interestingly, mutual funds were positive in the debts segment, while FIIs sold more than they bought.

After the dismal US job data for July (only 32,000 employment against an expectation of over 2 lakh), the markets are apprehending substantial fed rate hike. The global stock, oil, currency and commodities markets are likely to witness a turbulent week in the immediate term as these would try to grapple with the negative developments.

Concerns over slowdown in the US economic growth, internal security, fire in a US refinery and stand of the US Federal Reserves on the interest rates (it is to meet on August 10) would fuel speculative binge in the world's biggest financial market. Local stock market many not avoid the cumulative impact.

The FIIs are unlikely to risk fresh investments at this juncture in emerging markets, when signals from the US and developed economies are disturbing.

A fire-fighting effort by the government regarding inflation is on the cards. But the impact of it may not be felt much on the ground until the broad picture turns positive. The domestic investors, speculators and retail investors are likely to be selectively focused on the mid and small cap stocks. But, the overall outlook would be one of caution.

In terms of sectoral strategy, textiles, sugar, steel and cement may be favourites of some operators. The present market conditions provide opportunities for contrarians, but there are very few players to play that role. The herd psychology and a negative sentiment are likely to dominate the proceedings this week.

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