The Hindu Business Line : Indices may witness sideways movement

The Government's efficient handling of the turnover tax issue, allowance to banks for increased market exposure and proposed regularisation investments from overseas hedge funds are likely to imprint salubrious impact on the market.

LAST week's upward move in the Nifty and the Sensex, fifth in succession, as predicted in these columns, surprised many in the market. In percentage terms, the key indices gained by over 1.9 per cent over the week.

The S&P CNX rose by 1.6 per cent. The BSE-IT index jumped 3.7 per cent, while the BSE index for consumer durables declined 2.6 per cent.

In a quick volte face, traders and operators were forced to drop their largely technical and risk-based bearish stance to take up a bull position.

Predicting this week's move, however, is trickier than the previous week as fundamental and technical indicators are giving mixed signals.

The crude price after touching its all- time-peak came down slightly on the weekend over a Russian assurance that the supplies from its largest producer Yokos will not be disturbed. In the domestic front, the retail petrol and diesel prices went up yet again.

The rising inflationary pressure and monsoon deficiency are taking their toll on the economy and the market sentiment.

The Centre may be forced to cut Plan expenditure by 5 to 10 per cent in the current fiscal to meet contingency expenses in case of a drought.

The country as a whole reportedly recorded almost 40 per cent deficiency in rain till July 28. The chances of prices of commodities shooting up are increasing.

On the technical front, weaknesses in two indicators are worth noting. First, the stock prices lately have been rising on a falling momentum. Second, the rise in indices during the last week was not supported by market breath. These can be read as advance signals for a corrective fall in the short-term.

But, more-than-expected growth in corporate profits in first quarter and decent overall recorded market volumes are to paint the near-term outlook in positive colours.

More importantly, the UPA Government has been able to instil confidence among the market players and put back economy in the forefront in the agenda away from disturbing political noises.

Though FIIs are not aggressive as they were a few weeks ago, they are not indulging in heavy selling either.

As a matter of strategy, the market players, particularly the domestic investors, are keen to ramp up the mid and small cap stocks.

The low P/E stocks, with good fundamentals and debt-free balance sheets are attracting attention simply because returns in percentage terms are much higher than those in the heavyweights.

The focus is likely to continue for sometime till returns-investment ratio turns unfavourable.

This week the key indices may move sideways; may even see a short-term correction.

The broader indices are likely to fare better. Sectoral and specific stock's fundamentals are likely to determine valuations.

On the whole, this week's market move is likely to be based more on the ground realities than on an airy-fairy feel-factor.

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