The Hindu Business Line : Bears lumber back into Dalal Street

Considering the high esteem in which Dr Manmohan Singh and Mr Chidambaram are held by the capital market fraternity, the expectations from the Budget are extraordinarily high, specially after FM's Mumbai sojourn.

AFTER beating around the 5000 bush for a while and failing to close above the psychologically important level, the Sensex returned to it's bearish ways plunging to a 112-point fall Friday. A pre-budget rally that the market was harping on is slowly petering out.

Earlier in the month, the suave Harvard educated lawyer did what no Finance Minister had ever done before him. He undertook a pilgrimage to Dalal Street and spent more than 24 hours spread over two days in pleading his Government's resolve to carry forward the reforms process in front of the numerous deities of the capital market pantheon.

Contrary to popular belief, FIIs have not exactly pressed the panic button as yet. They were net sellers to the tune of Rs 3,250 crore in May but have pumped back Rs 534 crore in June so far. But the Sensex has fallen 940 points from the high of 5772 to 4832. Bulk of the weakness came from the unwinding of derivative positions - at Rs 6,375 crore they are at a 10-month low.

With a lot of FII capital waiting with one eye on the Budget and foot in the door, the importance of the Budget being able to measure up to the raised expectations cannot be underestimated.

FM's Mumbai visit may have soothed some raw nerves and rekindled hopes. This visit may have prompted FIIs to hold back sales in June. I am afraid that in his anxiety to buy short-term peace with the markets, the suave FM may have tendered assurances that he will find difficult to script in his Left-dictated Budget.

With elections due in Kerala, West Bengal and Tripura, all Left bastions, the Left will like to be seen as publicly opposing IMF dictates and reforms.

Other thorns in the market flesh are the demand to review the entire Balco deal all over again and the issue of reservation in the private sector, which the market thinks is nothing more than rhetoric.

The market immediate worry is the Rs 6,000 crore-odd TCS initial public offering. The much-awaited float from the Asia's largest IT company is a overhang on the market. While the issue will easily sail through, the market fears that some selling may happen ahead of the issue.

A school of thought argues that there is enough cash lying on the sidelines and additional sales may not be necessary. Assuming this is the case, then it too is a bearish scenario. If the idle cash is going in to the IPO, then who is going to support the market at lower levels?

Among the positives for the market is the chances of India making it to the G8 along with China to make it G10, the ending of strike in Nigeria which was threatening to the stop oil supplies and the data that only 2.5% of the US jobs have come to India, a figure much lower than what was feared by the Americans.

The Sensex has continued with its bearish ways if making lower tops. After making a high of 5487 on May 13, the benchmark has made consecutive lower tops of 5163, 5027, 5012 and 5000. I see the markets opening on a weak note with buying emerging later during the week.

The Sensex is likely to test the 4759 mark and if that breaks, 4665 will be at test. Any bounce back in the Sensex may be seen as a dead cat bounce and the Sensex is unlikely to surpass 5027 during the week. For the moment, bears are back on Dalal Street.

The author is Head of Research and Vice-President of Anagram Stockbroking. The views expressed here are his personal ones and need not be those of his firm.