The Hindu Business Line : Narrow movement with volatility may continue

IT would be odious to compare the trading on the New York Stock Exchange and the National Stock Exchange or the Bombay Stock Exchange, simply because of the size and the depth.

But last week the top bourses in the US and their local counterparts developed the same symptoms of an ailment called confusion.

Common consensus on confusion: Stock markets complained about low liquidity, thin volume and tightly ranged activity. Traders were conspicuous in their absence.

The perception of the markets about the political economy of the time turned gloomy leaving the investors to recoil. The common institutional investors in the US and Indian markets reflected similar attitude of waiting for some time for things to settle.

Dalal Street is finding it difficult to get out of the negative groove as it is still not reconciled to the new political and economic noises for example on agri-credit or reservation in private jobs.

During the last five years, it had learnt to deal with the political and economic language of the previous regime, even when they sounded contradictory.

For the overseas funds, particularly from the US, which constitute the largest chunk of FIIs present in local market, investment now has an additional dimension. Recent disturbing developments at home and abroad, where the US geopolitical as also economic interests are stake, have made this investor community jittery.

Apart from uneasiness regarding the higher interest rates regime that may soon set in, Iraq, sudden escalation in threat perception from terrorists and the uncertainty over oil prices have clouded the investment perspective.

The steady recovery in the US economy and the globe as a whole in the medium-term is believed to be getting messy. If India and China stumble and the recovery in the developed economies slips up, the global investments flow would go awry.

According to Mr John Snow, US Treasury Secretary, "fundamentally" things are still under control. The US is expected to generate additional savings as the economy recovers and investments flow to the emerging markets would fuel global growth. But the creeping doubts about this prescription have slowed down portfolio investments movement for the moment.

In the local market, the reengineering of the economy and churning of priorities have not been revealed in full. Whatever has been signalled, either has not sunk in well so far, or could not generate enough confidence on the Street.

Sideways show: Last week, the Sensex showed lower tops, but not a lower bottom. No major panic is expected this week, which will see settlement of June contracts in the derivatives segment.

However, volatility is likely to increase and volumes may go up slightly. Friday may indicate beginning of a short-term bounce-back.

According to technical charts, market could reach short-term bottom this week. For the Sensex, the nearest support is available at around 4690 points, followed by one at around 4580.

The trend in the derivatives trading suggests shift to and marked shorting in July contracts.

The short-term traders, who are waiting in their wings, may start getting reactivated. Some, among the tribe, with bearish tendencies, may sell on a bounce-back and square up on fall.

Infosys is going ex-bonus on July 2. Before that it may attract some traders and deep pockets.

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