Business Daily from THE HINDU group of publications
Monday, Jul 17, 2006
Markets - Outlook
Columns - A Ringside View
The magic of Infosys drew the fighting spirit of Dalal Street against all odds. The indices did not gravitate the way it could have last week.
In many ways, local market was an island in defiance. In the backdrop of hardening global interest rates and fears of heightened inflationary pressure, the recent negative geopolitical developments - right from North Korean nuclear missile tests to fresh tensions in West Asia and to a series of blasts here by terrorists - have only added fuel to the burning fear of the on-coming global slowdown. The crude price surge has further pressured equities in all markets.
Nervous investors have turned hesitant and prefer to stay in cash or in precious metals.
Interestingly, though the outlook of the US economy is still strong on some positive data flow (for example, a report early this month on factory orders was higher than the market expectation), investments have slowed down both in stocks and bonds.
Even apparently positives are being seen in the US under negative light.
Expectation of a higher employment figure in the official report (for June) elicited Wall Street's uneasiness because of a perception that a strong report could encourage the Fed to continue raising interest rates.
Investment strategists feel that there is a temporary lull in the search for opportunities to get in.
Rather investors may be looking for excuses to get out.
On the other hand, Bank of Japan's move to end the zero-interest regime after seven long years of deflationary period is not being seen in the light of global growth prospects, but as a precursor to withdrawal of cheap yen-driven liquidity.
The overseas fund managers are ignoring the lure of emerging markets including that of Indian equities.
The overall FII investment may continue to be in the net negative in the short term. They may turn suddenly positive, on occasions, in a few stocks depending on coincidence of strategies.
The local investors also do not seem to be in an aggressive mood.
Only an out-performance may draw premium.
The derivatives market indicators also do not throw up possibility of a dramatic change in the sedate and cautious hedge or speculative pattern.
Overall indication suggests that market may drift downwards this week with occasional blips marked by tight money flow and limited volatility.
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