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Jayanta Mallick

On the whole, in the absence of a quick-fix solution to the inflation problem on the economic front and lack of buying interest on the floor, a correction is a likely scenario in the short term.

LAST week, as anticipated in these columns, the Finance Ministry and the RBI did make statements suggesting measures to contain the inflation rate and the BSE Senex did lose substantial ground, 94 points net.

This week, the key indices are likely to drift downwards because of soured sentiment, but selective activity will continue in the mid- and small cap stocks. The stocks, which are available for futures trading, are likely to remain weak.

Payment for the TCS IPO, which was a drag on the liquidity for some market players, will be through early this week and the unsuccessful bid money may return to the market. Had the market mood been in a fine fettle, this could have given an impetus for a general buying spree.

The futures shock: On the weekend, inflation indicators turned negative further. The wholesale price inflation moved higher to 7.61 per cent. The global crude futures prices threatened to head for $50 a barrel.

On fresh evidence of strong Chinese demand, worries about sabotage in Iraq and explosion at a US refinery, the September light crude flared to a record $46.65 a barrel on the New York Mercantile Exchange on Friday. London Brent also hovered around $44 a barrel.

The all round news flows have made the market players improvise their strategies. Foreign institutional investors and domestic mutual funds were net sellers in the stock market last week.

The questions on which bulls and bears are clashing are: a) whether the economy can absorb inflation-adjusted crude price rise; b) if inflationary pressures could cap GDP growth rate and lower margin for businesses; and c) whether the Government intervention would succeed in softening prices.

The stock traders are nervous in view of the many pedestrian versions of macro-economic management, which are being sold on the Street. A set of market operators has been successful in manipulating hourly averages of key indices, pushing them above and below the known support and resistance levels, on which day traders depend for deciding their trading strategies. This has enhanced volatility in the cash market.

The derivatives market also has not thrown in any positive signal last week. A preference for reduction in commitment only suggested a readjustment of stance in the prevailing circumstances.

The proposals for merger of ITC Hotels with ITC and the mega-merger of four oil PSUs have queered the speculative pitch. As long as the swap ratios remain unknown quantities, the very uncertainty may exert unusual pressure on the prices of these heavyweights and in turn, is likely to rock Sensex and the Nifty.

Listen who is talking: The market is also unlikely to take cognizance of the supposedly good news that a study group has recommended FII limit hike in PSU and private banks. The political one-upmanship over economic policies may be available for display this week when Parliament opens for a short stint to pass the appropriation bills.

On the whole, in the absence of a quick-fix solution to the inflation problem on the economic front and lack of buying interest on the floor, a correction is a likely scenario in the short term.

However, the corrections may not be very deep. The decibel levels of the political noise over inflation and its management can influence the degree of intra-day corrections.

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