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Monday, Jun 19, 2006


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Further consolidation likely


A large section of market players are still hesitant going long

After remaining in the negative zone for five consecutive weeks, the Sensex last week turned positive confirming an intermediate recovery trail. The downward slide had come to a sudden halt on the last day of the previous week as overseas funds made a net purchase of Rs 508.90 crore on that day, much higher than the NSE-collated provisional of Rs 381.22 crore.

But the benchmark index slipped back on the first three days of the last week with high intra-day volatility as bargain buying was overshadowed by another bout of large-scale sell-off.

Buying by the overseas funds and domestic players (other than mutual funds) largely helped indices to return to the green with a gusto on the last two days. According the provisional figure, FIIs pumped in Rs 599.13 crore in the net on last Friday, after making a net investment of Rs 139.90 crore on Thursday.

The overall liquidity showed marked improvement last week and market breadth also turned distinctly positive.

This week, market is likely to attempt further consolidation and the liquidity situation may improve gradually. But high volatility cannot be ruled out, as temperamentally a large section of market players are still hesitant going long.

Interestingly, analysts and market observers of overseas fund houses are still presenting an incoherent, often contradictory, picture about the short-to-medium term outlook for the emerging and Asian markets.

Amid global confusion over the growth prospects, direction of interest rates and inflationary pressure, last week the Japanese central bank - Bank of Japan - withheld hike in the rates, at least for the time being. Positive signals also came from the US Federal Reserves when it indicated that US inflationary pressure was not worrisome. Predictions that crude prices would gravitate towards $40 a barrel in the medium term, emanating from the BP Statistical Review on World Energy, and Iran's reconciliatory stance on the nuclear issue, served as dampeners for the crude market speculators. At home, the Finance Minister too sought to allay fears over further rise in interest rates.

Interestingly, despite reports of strong outflows from the emerging market equity funds, in the week till June 8, FIIs were net positive in the Indian market.

While data released on June 8 by the Emerging Portfolio Fund Research said international investors withdrew money from emerging market equities in the preceding week and put a fresh bet on US equity and Global equity funds, the SEBI statistics stated that overseas fund pumped in $225 million in the net into Indian equities during that period.

The fact that the Dalal Street bellwether has recorded a sharp recovery after declining 30.5 per cent from its all-time peak at 12,671 points level is irrefutable even by the sceptics, who are now proclaiming Indian market is yet to the correct to the "fair value" level.

The market direction in the next fortnight would depend on the liquidity even if analysts have doubts on a short-term consolidation above 10,000 points level. Despite current cacophony over India's current account deficit, foreign fund flow to Indian stocks is likely to grow in the short-term simply because in the long-term perspective, current price levels are lucrative considering both relative market risk and return prospects.

The directional call for the medium term, however, would begin to emerge only after middle of next month.

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