The Hindu Business Line : Volatility, bull or bear, to remain

According to technical analysts, if the support at around 5,567 points level on the Sensex is breached, the key index may indicate clear bearish signal.

WHERE have all the bargain hunters gone? Or the cheerleaders who are to direct the investor pack to higher valuation altitude?

Biblically speaking, at the beginning of the last week there was confusion, then came the bounce-back, which was followed by pangs associated with expiry of derivatives contracts and in the end when every bit of problem was supposedly over, the investors went into a shell.

The BSE Sensex and the S&P CNX Nifty wilted under selling pressure. As is their wont, everybody on the weekend asked everyone-else about the weather on Street. A normal technical correction in the bull market eh! There were other excuses also (Justifications may vary depending on which side of the fence one is in).

Rally of a third kind: Major political parties have hit the campaign trail with rallies. A number of market players pointed out that the stock market's current weakness is linked to the selling by two big corporate groups for raising funds for elections. The veracity of these kinds of talk can hardly be checked. However, there is no tax on such airy-fairy Street "news".

Whatever may be the reason for the present selling trend, the FIIs have not become net sellers; only slowed down their investment. There has also been declared caution by certain broking houses because of the Participatory Notes conundrum, which would unfold truly after February 3.

According to technical analysts, if the support at around 5,567 points level on the Sensex is breached, the key index may indicate clear bearish signal and likely to settle 400 points downhill in the short term.

Tiger burning bright: The economy is supposedly shinning. The corporate reports, by and large, in the Q3 have been better. The concerns over the rising inflation and fiscal deficits or falling employment are also quite muted. Nevertheless, the bulls are keeping them tightly fenced. Despite economic sops galore, the elections and apprehensions over reforms taking a backseat for the time being have provided an opportunity for a willing suspension of belief that the market's underlying fundamentals are positive.

This week, if the Sensex dips to 5,500 points level, then FIIs may turn buyers. Most active players in this segment are now neutral-weight in Indian equities. (Neutral- weight means, they consider the current valuation of their holdings a fair one and any dip in the market valuation or rise in the earnings prospect may call for a review). There are a few exceptions; some of the FIIs are overweight. But if the indices move northward, net investments by FIIs may taper off.

In case of a substantial fall in the benchmark, the corporates may prove market makers. India Inc is smart enough to protect its interest. If the sentiment can be tilted towards optimism and selective revaluation, the retail investors, who retraced to the sidelines, may join in to rekindle the party fire. However, the retail investors may have to learn to live with volatility in the coming weeks.

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