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Monday, Jul 18, 2005

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Money flow - the main spinner of market

Jayanta Mallick

LAST week, sheer liquidity flow kept the benchmark indices out of the woods. The combined net FII figures were positive.

SEBI data for the first four days of the week showed net fresh overseas investment of Rs 1,269.10 crore. However, a noticeable thing was that FIIs net investment figures climbed down through the week till Thursday, while local mutual funds finally turned positive on Thursday, for the first time in July.

Though the hurricane Dennis did not cause the kind of damage on oil installations in the Gulf of Mexico as apprehended earlier, the crude oil price continued to hover menacingly around $60 a barrel in the first few days of the week. This had its impact on the market sentiment and to an extent the liquidity flow. As towards the end of the week speculative pressure on the global oil price eased, the equities bounced back.

This week, money flow from domestic and foreign players is likely to increase on Dalal Street and buoy up the indices further. But, the crude price fluctuations may continue to influence the overall investing psychology.

Going by the trends in strategies of the big players, it seems that it is not yet time for secular growth and sectoral voyage but stock-specific attention and reinventing investment ideas. The FIIs appear to be comfortable with the Sensex and the Nifty P/Es compared to benchmarks in the leading destinations among the emerging markets, but actual investments energies are being directed towards value hunt among the bluechips and mid-caps.

Even the newcomers from the East and the Far East - Japanese, Koreans and Taiwanese - give an impression of being open.

The domestic funds, on the other hand, seem to have finished their approximately four week long profit-taking spree. They are likely to enter a buying spell.

Interestingly, all the emerging market funds categories tracked by the Emerging Markets Portfolio Research (EPFR), received net inflow from the investors in the first week of July to the tune of $665.24 million, strongest appetite for equities since the week ended on March 9.

These funds would soon be deployed. According to experts, a significant portion of the emerging market funds would be directed towards India in this quarter. Thus the results expectations and the actual numbers on the Street may not be the sole criterion for upward valuation of stocks.

Some analysts were of the opinion that large-scale tracking of advance tax payments by the corporates have snuffed out much of the surprises from the results. But perhaps this secondary indication is also not proving adequate to gauge market's mood.

Over or under expectations regarding results for the June quarter will continue to surface in the coming weeks. However, the liquidity will have the last laugh.

The mid-cap and small-cap stocks are likely to do better as a continuous stream of investment ideas and new developments seem to pour into the space. The retail investors are firmly hooked on this bandwagon till the liquidity and the luck dominates.

The corporates, which are reasonably in cash, have broadly avoided the gravy train so far and stuck to old investment practices. This may be partly due to their own expansion initiatives and partly for lack of confidence in the emerging mid- and small-cap Inc.

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