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Monday, Sep 06, 2004

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Dalal Street sees wide scope for mid-caps

Jayanta Mallick

THE key indices are likely to remain firm this week, but the mid-cap stocks are to lead the market. So the broader indices are likely to outperform the Sensex and the Nifty.

There are indications of a serious market-making effort in the select mid-cap stocks by a section of influential players. By and large, the domestic liquidity so far has been chasing the mid-cap ideas.

But it may not be too long for FIIs to bite a few new ideas once local market makers create enough depth in some of these counters. (This week FIIs, however, may not be aggressive in their investments because of holidays).

The last week's 101 points gain on the Sensex has placed the market in a positive psychological frame.

It appears that the domestic stock market has come to terms with the strong crude price and higher inflation numbers, at least for the time being.

There is hardly any doubt in the minds of market persons about the economic opportunity that is unfolding. Money is also is in the waiting.

However, market moves are marked by hesitation. The valuations are not aggressive. The tentativeness in the market largely stems from an uncertainty over the disturbing political trends across the country and across the party lines.

The statements of the Prime Minister, Dr Manmohan Singh, at his first press conference on the weekend, may not buoy up the market confidence dramatically, but his reassuring words on the reforms are likely to soothe frayed nerves.

The message, away from political hype, was clear that the economic fundamentals are still strong.

In the last fortnight, the business has made politically correct gestures (steel industry has cut basic product prices, while the pharmaceutical industry has initiated price control measures).

The market is now looking forward to the political establishment to make economically correct moves.

Even though the long-term broad picture is positive, the short-term scenario continues to be influenced by the moves from the political establishment.

As a strategy to counter the uncertainty, the big investors have opted for the mid-cap stocks and are cautious about the heavyweights.

The restricted volumes are not allowing the key indices to cross the technical resistances with aplomb.

Sectorally, the chemical and paper stocks may gain favour with the market makers this week, as valuation opportunities remain untapped to quite an extent.

The cement stocks, by and large, are likely to continue to move ahead. The cement exports story to West Asian countries has caught the imagination of a section of investors.

The IT, bank and MNC pharmaceutical stocks may selectively buzz.

In the mid cap space, some hotel, diamond and textiles counters may pleasantly surprise the market this week.

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