The Hindu Business Line : Equities seen rising amid volatility

On balance, the market is back to basics - the economic and corporate fundamentals. The outlook for the third and fourth quarters is tentatively taking shape.

The Budget session of Parliament could not have ended with a sweeter note for Dalal Street. The transaction tax has been made bearable and capital gains tax changes have brought in a whiff of fresh air.

Alarmed by lack of rain, inflation numbers, petro price and rupee slide, the investors will breathe a sigh of relief that the growing political noise over Mr Sibu Soren will lose some decibels. However, the FDI issue has been brushed under the carpet for the time being in the face of strong opposition. Though the proposal did not have any budgetary implication, in the insurance sector it had legislative implication in the form of an amendment in the IRDA Act.

Season for mid-cap: It is as if a magic wand has touched the sleeping counters. Hundreds of small and medium capitalised stocks have started blooming. The cut in short-term capital gains tax has sprayed life into many.

But the market is wary of pied pipers, who would like to lead retail investors down the garden path and into the pit.

An air of guarded optimism hangs in the air as some of the mid cap companies have reported better results for the first quarter.

On balance, the market is back to basics - the economic and corporate fundamentals. The outlook for the third and fourth quarters is tentatively taking shape. The market has already factored in the estimated deficiency in the monsoon. However, crystallisation of its effect on the sectors and the stocks would manifest itself in the coming weeks. There is no denying the importance of rains on the industrial and business economics of the country.

In this backdrop, it is apprehended that the overseas investors are likely to remain off the ring for some time. The relative economic performance and political risks are weighing down against the local market.

The markets such as Brazil and Turkey are currently hot destinations among the emerging economies for the global funds.

But the domestic investors, who have hardly any alternative avenues left, are expected to fuel the stock market in the near future.

This week, the key and broader indices are likely to move up with the volume growth. The corporate results would determine the degree. However, volatility is likely to persist.

Failed trust: Sudden moratorium on withdrawal of deposits from the 2001 securities scam tainted Global Trust Bank announced by RBI on Saturday is a blow to the investing community. Though it may not affect the stock market as such, the scare is a real one. (Operation of the depository accounts through GTB and the income accrued to this effect are likely not to be the part of the moratorium; Authorities are expected to clarify in details the position vis-à-vis the depository accounts in GTB on Monday).

All along the RBI and Government had been assuring that corrective measures would be taken to see that the depositors of the bank were not affected. The unfortunate development yet again raises the questions, which were voiced first by the last Joint Parliamentary Committee.

The monitoring mechanism for the end-deployment of the bank deposits is not in place yet. Banks' increased exposure in the capital market, as envisioned by the 2004-05 Budget, is definitely fraught with additional risk as the central bank, the market regulator and government have addressed the relevant issues only partially.

More Stories on : Commentary | A Ringside View

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
A future for derivatives

Balanced funds - Losing their balance?

Indian counters end on subdued note

Let a thousand flowers bloom but...

Equities seen rising amid volatility