The Hindu Business Line : Another buoyant week likely

DALAL Street garnered enough liquidity last week to raise the benchmark indices. This week, local equities are likely to end on a buoyant note, as the market makers appear determined to keep the Sensex flag flying.

According to market observers, domestic liquidity has been strongly behind the equities through the December so far.

Expectations of improved third quarter corporate results and decent economic indicators have been underling the bullishness. But, the real driver has been the front running by the bulls, who are betting on medium-term appreciation in demand for local equities.

Limited downside: Will this gambit pay off? Clearly, the market is not factoring in the possibility for large-scale sell off in the short-term. Despite volatility and uneasiness about the current level of valuations of the frontline stocks, the long-term domestic and overseas investors not demurred since November.

This seems to have lent a confidence to the market that the downside in benchmarks is limited. Even a section of the market feels that the forthcoming long year-end holidays may not come in the way of sustaining the gradual build up in momentum.

Betting on new birds: The bet is also on weaker dollar against rupee and off-peak global crude price. The market is expecting that in 2006 Indian equities would see entries by a new set of overseas investors, who are mostly long-term and are willing to pay higher price for steady and relatively better return.

Unlike in 2003, when hedge funds flocked on Indian equities with a relatively shorter-term perspective, the new wave of forthcoming investment is entering at a much higher level.

According to experts, this time, hard and cold financial decision seems to form the base of investment decision regarding India.

It's advantage India: On the long-term horizon, Indian equities appear to have an edge over other such asset classes elsewhere in Asia, Eastern Europe and Latin America. It is not the market P/E, but host of other factors such as political risk, return prospect and integrity of the market are drawing the new set of investors towards India.

It is estimated that investments worth $3-4 billion are likely to hit Dalal Street during the first half of 2006 from Japan, Australia and the Middle East countries alone.

But why this size of money would come to Indian equities when the local market is scaling its all-time high? A few compulsions seem to overlook the relatively higher valuation levels.

For the Australians, who have just begun to flex their financial muscles in the global arena, investments in India is important to increase their clout in the fast moving emerging markets.

For the Middle-East investors, parking funds in the US and European equities have become troublesome following 9/11. In their eagerness to shift money, they have discovered India. The Japanese investors are also gradually reallocating part of their portfolio money and reducing their exposures in China.

Domestic market makers have been attempting to prepare the ground ahead of the change. The time will tell whether the Indian capital market can take full advantage of this churning in the Asia-Pacific region.

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