The Hindu Business Line : Negative sentiment prevails on pivotals

LAST week, the weaknesses in the Reliance group stocks were largely compensated by inspired buying by FIIs in other Sensex stocks such as ITC, Hero Honda, Tata Motors.

Has Dalal Street developed immunity to corporate convulsions in the largest private group of the country?

The Indian stock market undoubtedly has changed in the last two decades. To borrow the SEBI Chairman, Mr G.N. Bajpai's words, the Indian securities market is in transition.

In the last 10 years, the stock market has been redefined, reinvented and reconfigured in many ways than one.

The role of foreign institutional investors in providing direction to the market has been the most significant change in the last few years. Though, in terms of ownership, they have still long way to match the domestic investors. But in terms of day-to-day liquidity flow, overseas funds have taken the driver's seat on Dalal Street.

Last week, FIIs pumped in Rs 1,696 crore into the Indian equities (the domestic mutual funds continued to pump out money from the system).

The most interesting part of the game is that FIIs, who have come in recently, have been the buyers. However, the sentiment of the market for pivotals remains unchanged in the negative territory.

This week, lack of buying and a bout of selling may change the complexion of the key indices. Some of the overseas fund managers feel a serious correction in the Sensex is in the offing. Funds anywhere are subjected to redemption once sentiments dip.

Now that the Reliance spat is in complete public domain and seems a long-drawn wealth destructive one, chances of the market sentiment getting infected are more.

There is little solace that the market may further reinvent itself for ones who are long. For now, issues such as corporate democracy, transparency and governance are in the domain of theory and speculation.

As equity investments are subject to market risks, investors might be forced to reconcile with the losses - ostensibly for drop in sentiment in the short term.

But in the long run, the developments, such as one in Reliance, may spur shareholders' activism. The mid-cap stocks, however, appear somewhat insulated in the near term from fluctuations in the sentiment as this pack is moving on its own steam.

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