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Monday, Oct 24, 2005


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Undertone remains sketchy

Jayanta Mallick

THE benchmark equity indices have displayed a recovery process in the last two sessions of the week gone by as the FIIs slowed down the selling binge. SEBI data clearly demonstrated that the net selling level of around Rs 300 crore has come down through the week to well below Rs 100 crore on Thursday. Will it turn net positive this week?

There is no ready answer to this question. But last week's slowdown in pumping out money by overseas funds, which was largely prompted by a steady fall in the rupee against dollar in the last fortnight, had its salubrious effect on the local equities towards the end of the week.

RBI did not intervene (albeit through dollar sale by the PSU banks) very aggressively in the currency market. But the low-key exercise had its impact on speculative activity on the dollar. At the weekend, the slide seemed somewhat arrested.

All these provided psychological relief and have given an impression that the worst may be over. The beginning of this week is likely to carry this air. A large majority of players, who held themselves back or exited, may be tempted to return to the ring. However, sustainability of the bullishness through the week is in the realm of conjecture.

FIIs go elsewhere: Global fund flow has been showing change of direction since September following a wave of risk aversion and worries that the US inflation, slowing growth and interest rate hikes might lure away capital from emerging markets. Fund managers, of late, have been directing funds more towards emerging markets such as China, Russia, Korea, Brazil and Turkey.

This month, the Indian equities market, on the other hand, has been witnessing fund outflow. Institutional brokerages handling international clients suggest that comparative overvaluation and weakness of rupee against dollar have been largely behind this. But they seemed to feel that this is a short-term phenomenon and may extend to the medium-term if the Government cannot move at all on the reforms front, particularly the liberalisation of restrictions on FDI.

MFs play different tune: Interestingly, the local mutual funds, which have been playing a contrarian role in a falling market, last week witnessed some eagerness for redemption among the investors. Mutual fund poured in fresh money worth Rs 237.41 crore in the net on Monday, Rs 321.72 crore on Tuesday and Rs 596.91 crore on Wednesday. But it sharply dropped to Rs 25 crore on Thursday. If the market sentiment remains positive for the first couple of days, first signs of redemption pressure may die down.

The short-term outlook would be positively influenced by overseas liquidity flow. The well-entrenched long terms players appear to have no intention of looking for an exit at the moment. The momentum players may, however, wait for a while before pumping in fresh doses of money.

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