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Jayanta Mallick

This week broader indices may out-perform if the benchmarks remain steady

It's an anniversary everyone liked to forget. So, the stock market, floating on cloud nine, ignored the fifth anniversary of its last mega fraud.

Had it not been the beginning of trial of Mr Dinesh Dalmia last week, reference to 2001 securities scam would not even have crossed the minds of the scribes.

Strong liquidity-led momentum has partially blurred the market view.

Foreign investors are continuing to pump in money to funds directed towards local stocks. Mutual funds here are also witnessing no let up in appetite. Cash flush funds do not have very many options.

As a result, inherent efficiencies, falling return and rising risk are perhaps not being reflected in the advancing indices leaving long-term and conservative investors little uneasy.

In the short-term it seems that the hot money, both local and overseas, is setting the trend. But stray indications suggest that some of the long-term investors are beginning to apply brakes.

On March 6, Oppenheimer closed the inflow window for its $9 billion Developing Markets Fund to screen hot money into it. It is also closing the emerging markets-tilted Oppenheimer International Small Company (6.4 per cent of $1.5 billion asset base in Indian equities) and raising its minimum investment to $50,000.

Certain domestic funds are also reducing their inflow aperture.

Fidelity has recently sold off its holding in MNC pharmaceutical company's Indian arm and market intelligence suggests that it is considering liquidating investment in a liquor major.

Market circles feel that corporate governance issues are behind such moves.

Serious market observers are expressing caution amid apparent indiscretion adopted by a group of players with a short-to-medium term perspective.

Concern is slowly growing in the international and national investor circles over an India investment overdrive, un-elated to the performance of the economy.

Hordes of new investors with lower return expectations are "catching of with the emerging India reality". Some reportedly are stepping on the bandwagon at a higher level on pure hype.

Indian regulators are watchful over the surge in liquidity as basics took a backseat. In the last five years, the market has undergone a sea change in terms of safety, transparency and regulation. But, continuation of an informal arrangement as also inadequate network among several watchdogs, duality of control and absence of a comprehensive legislation for the financial sector still dogs Dalal Street, unnoticed in the time of a boom. The current situation, when macro-economic fundamentals are improving, corporate development is hectic and overall mood is upbeat, liquidity is likely to determine even a correction and its extent.

This week broader indices may out-perform if the benchmarks remain steady.

The domestic stock market in the immediate term does not appear to be following the trends in other markets. It is rather setting its own trend based purely on local consideration.

Even in case of a correction, downside also seems restricted.

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