The Hindu Business Line : Vulnerable market looks for support

This week, the operators are likely to try their hands in pulling up some of the Sensex heavyweights so that the downward drifting mode of the market is arrested. The market psychology, and not the volatility, right now is cause of worry for the soothsayers.

THE stock market appears vulnerable at this point in time. FIIs have first slowed down the buying spree and then showed inclination to become net sellers in the cash market.

From the point of view of demand and supply, the market is clearly facing an imbalance. Going by the trend during the current rally, it can be assumed that if the FIIs suck in money from the system aggressively and quickly, the matching replenishment from the locals may be lacking in the short term.

This not to suggest that FIIs will turn sellers in the coming weeks. But to underline the possibility of a scenario that may emerge in the next five to six weeks. (Historically, FIIs are much less active during December.) Will the domestic players, who had so far looked after the supply side, be ready to buy at 4,500 level of the Sensex or sub-4,500 level?

At PE of 18 currently, the Indian market is understood to be "fundamentally priced". Compared with other emerging markets, taking into account the rate of interest and corporate tax (a la sensitivity survey), Indian market may not look as attractive as it used to be eight months ago.

So there may be a correction in the short term but the in long-term, things are pretty bullish as some analysts love us to believe.

But all the talks about the Sensex reaching 6000 mark some time in 2004 on the back of a good monsoon and seven per cent GDP growth estimates as also assumption of a "positive" Budget in the next April are conjectures in the least if it is not explained who are going to be buyers at high altitude. There is no denying the fact that erstwhile buyers need to book profit at some point of time and distribute a part of the stocks they accumulated and held over the months.

This brings us to the behaviours of the locals. The euphoria that drives pensioners, housewives or paanwalas to the stock market is amiss. Even the extra cash of the corporates have not started flowing in onto the market floor. The domestic mutual funds are currently in the sellers' list, even though their fund managers are bullish. That leaves us with the portfolio management schemes. With a diverse crowd of momentum, value and growth players and high networth individuals backing these schemes, it is hardly expected that they would have the courage to indulge in a contrarian play in a falling market.

True to the oral tradition of the country, the so-called market talks over the sectoral stories such as textiles, shipping, transmission cos, steel, pharma and the like, are doing the rounds.

The notable development last week was that a Singapore-based equity funds have entered the Nifty futures and select stock futures with short-term perspective with a corpus of around Rs 350 crore. A few more from Mauritius and South East Asian countries are also eyeing the Indian derivatives segment.

Indications in the cash segment are that some FIIs also may show interest in top counters in the derivatives list. If this happens, the correction path may be altered this week. Otherwise, fears of a deeper correction may loom large.

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