The Hindu Business Line : Broader indices may perform better

The market psyche has turned more towards buying than fence-sitting or hurried exit. At this juncture, the market is clearly price sensitive; fundamentals are secondary.

MUNGERI Lal, the investor, heaved a sigh of relief as the Dellywood sideshow for the market was finally over with the 13th Lok Sabha being dissolved last week. (The capital gains tax exemption on share trading will dangle till the new government makes it functional.) It doesn't do much to him or the indices he looks up to every day.

In this pre-poll clime of "Budget" promises, market players have found themselves out of place. As the dust settled somewhat, the key indices also appeared to have regained their bearing.

The benchmark Sensex, after wild swings, technically speaking made higher bottoms and closed safely, much above the crucial 5567-point level. The market may not be out of the woods altogether but chances of a sharp slide have certainly minimised.

This week, the Sensex and the Nifty are likely to seek higher levels. But broader indices such as the BSE-500 and the NSE-500 may perform relatively better in terms of the recovery act riding a lukewarm retail interest. In the last few weeks' weakness, some of the mid-cap stocks shed between 30 and 50 per cent, much higher than the Sensex and the Nifty stocks.

The market psyche has turned more towards buying than fence-sitting or hurried exit. At this juncture, the market is clearly price sensitive; fundamentals are secondary. As the opposing sentiments - fear of being left out in case of even the slightest recovery and the tendency towards booking profit - are likely to be at play in the short-term.

The level around 6,000 points on the Sensex may induce some to exit but it may also prompt some, who are tired of waiting, to enter the market. However, extraneous reasons will continue to influence sentiment and may have a sobering effect on the prices.

The new rules of the game for participatory notes having sunk in, the indications are that they may not affect FII fund inflow in a significant manner. The confusion over the SEBI term "regulated" overseas bodies has been resolved. The foreign fund managers have come to terms with the domestic regulator's diktat that an overseas body has to regulated by any securities market regulator before it trades in PNs of underlying Indian stocks. Mere conforming to corporate law of a foreign land will not make it eligible for PN trade.

Seasoned FII fund managers and chief investment officers told this writer that the new rules are perfectly understood by them, hedge funds and OCBs. But, the violation of the norms and detection will remain a grey area as before.

The FII net investment figures last week suggested arrest of a negative trend. After registering a net negative investment figure on the first day of trading at Rs 436 crore, it recovered next day with Rs 325.70 crore net inflow. The last two days saw FII net investment at Rs 143.10 crore and Rs 232 crore respectively. Mutual funds also were on the net purchasers' list.

The volatility is likely to remain a constant factor this week too. The price fluctuation is also likely to take its toll on the rate of relative growth in the derivatives positions.

A few stocks are quoting at a discount to the cash in derivatives segment. The arbitrage business between the derivatives and cash segment is likely to be pursued by those who have the stocks. The stocks in which price differences have been smothered are unlikely to attract leveraged money.

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