The Hindu Business Line : Testing times ahead for Dalal Street

This week, there is a possibility of liquidity chasing the IT stocks somewhat. In the eyes of FIIs and the long-term investors, the Indian equities have not lost their shine

IT all began innocently enough a few weeks ago. Then it gradually got complicated, threatening to cast a long shadow on the unfolding story. First, the crude oil price trends provided the uneasiness and then the north-bound week-on-week inflation figures took the wind out of the bulls' sails.

The jittery market is looking at key indices with a dimmed view, if not with a jaundiced eye, for the time being. Investors, including overseas funds, are seriously turning to greener pastures amid mid-cap stocks.

Now, the dramatic twist is being dished out by the gossip circles on the Street. As is their wont, the nervous market players are seeking salvation through unconfirmed news - be it on the imminent split in the country's arguably biggest industrial house or a trapped bull in derivatives. On the whole, interplay of extreme passion may get the better of domestic equities.

Lower depth: This week, the stock market is likely to plumb to lower depths. For the Sensex, the Dalal Street appears psyched to accept a dip to the 4,800 points level. Beyond that, it is panic zone.

Though the inflation rate, in terms of annual progression, is still under 5.5 per cent, the near 8-per cent weekly rise is ominous in the backdrop of a demand-led price spurt in crude oil.

One school of thought among the oil economists feels that there is very little flexibility in improving the supply side management in the short-term. The contrarian view is that Mr George Bush may produce an ace up from his sleeve before the US Presidential elections to arrest the oil prices and boost his own prospects. All these are in the realm of speculation, and are rife in the global crude oil market.

Though all eyes are on Nymex October futures rates (the time also coincides with on-set of winter in the US), the Iraq situation and the Russia's role in oil market may determine how the prices would move beyond the $50-a-barrel territory.

At home, the double dose inflation-containing measures on steel and oil may not have a great effect on the sentiment. Apprehension of hardening interest rates, despite recent assurances, persists. Oil equities may have been immunised a bit by the Government, but the auto stock prices may not cheer up for the steel duty reduction.

If the truckers' strike prolongs this week, it will add up to the feel-bad factors. The near-month derivatives expiry may fuel selling in the cash segment.

Ode to oil: If tomatoes and Tata Motors, inflation and politics or agitation and reforms get enmeshed in the coming days, then it may be dubbed as an ode to the Black Gold.

Last Monday, the net FII investment figure of Rs 805.30 crore was a record of sorts, thanks to the TCS issue payments. But on other days, the net figures were negative for FIIs. The domestic mutual funds, for a change, were net positive on their investments last week.

This week, there is a possibility of liquidity chasing the IT stocks somewhat. In the eyes of FIIs and the long-term investors, the Indian equities have not lost their shine. But as a matter of strategy, none seems to be ready to swim against the current this week.

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