The Hindu Business Line : Upbeat market looks for steroids from SAFTA, corporate results

The benchmark index, the BSE Sensex, is likely to remain firm in the event of a smooth Islamabad declaration on SAFTA. An "unofficial" Indo-Pak summit, speculated to take place on January 6, may add bonus to the sentiment.

THE domestic stock market is on cloud Nine before the grand diplomatic premier in Islamabad this week. Unlike the false dawn in 2001 at Agra, the market is betting big this time on the dream of economic union of the sub-continent.

The sentiment is running high. It does not matter if the dress rehearsal falls short in substance. A correction? It has almost become immaterial, as floodgates of domestic money are poised for a grand opening along with a larger inflow of overseas funds. When the key indices are galloping, no one is bothered about a short-term correction.

Interestingly, all the major players have suddenly turned long-term. The short-term dips in the key indices are being seen as an opportunity for entry rather than a setback for the bull run.

Apparently, everyone is bullish about India's economic fundamentals. The market circles feel that if the political establishment gifts a terror-free market for the sub-continent, the stock market will not be in a mood to fix an upper limit for its northward movement in the immediate term.

If it fails, the market has sectoral growth stories knocking at the door — this seems to be the current argument. The common belief is that, after all, yields from equities are likely to better all other asset classes in the six months to a year timeframe. The bottomline is the growing liquidity, which so far has prevented any worthwhile correction along one of the country's most spectacular secular and broad-based bull run so far.

Litmus test: The third quarter result season, which begins this week, will prove crucial for the corporates to match up to market expectations. In the run-up to the fiscal year end (which incidentally may nearly coincide with the general elections), the results of the huge number of listed companies would be under microscope as the market has already attached higher valuation tags for them in the past three months.

Now it is almost official that the textiles (particularly the garment segment), auto ancillaries, pharmaceuticals, metals, shipping, housing, cement, constructions, banking and IT-ITES sectors are to perform better. The under-performers are likely to be punished.

Who is afraid of Dalal Street wolves: Last week, the market watchdog sniffed out Max Portfolio, one of the numerous unregistered private boutiques merrily running their operations purely on the trust of a section of investors. This one had the temerity to advertise and promote its portfolio investment service and was identified by the market regulator.

But it would be difficult for SEBI to identify and banish all those who are quietly carrying on their business in almost every nook and corner of the country. It is roughly estimated that during the current rally a few thousand such unauthorised and unregulated operators have sprung up and the total portfolio size runs into more than Rs 3000 crore.

The past booms have shown that as long as the going is good, these operators returned handsomely to attract more of the so-called investors' money creating an artificial yield spiral.

The current rally has also spawned small rackets in luring money to the penny stocks on the basis of word of mouth. Law enforcement agencies at the State level are still not geared to tackle such fraudulent operations.

Short-term outlook: The benchmark index, the BSE Sensex, is likely to remain firm in the event of a smooth Islamabad declaration on SAFTA. An "unofficial" Indo-Pak summit, speculated to take place on January 6, may add bonus to the sentiment. Mark of a thaw in Indo-Pak relations or disruption in the peace initiative may determine this week's fortunes of key indices.

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Upbeat market looks for steroids from SAFTA, corporate results