The Hindu Business Line : Dalal Street looks to North Block for direction

THE market seems to be on a drift mode after factoring in the likely positives. In the coming two weeks before the Budget announcement, Dalal Street is geared to respond to the signals emanating from New Delhi.

The expectations are high over the Budget, but Left's resistance to some of the Government's indicated liberalisation plans has kept the market's exuberance under wraps.

It would be a speculative call to predict whether the benchmark indices would cross their scaled peaks and stay above.

Last week's fund flow from the foreign institutional investors - net positive daily figures but restricted in the range between Rs 100 core and Rs 250 crore - suggests that there is money in the waiting. Local mutual funds are also pumping in money in measured doses.

If liquidity is not an issue, economic fundamentals are intact and corporate earnings are robust, then why the market makers are hesitant to place additional bets?

This may sound a simple question, but the answer lies in the investment psychology. As the economy is preparing to enter a new orbit, it is making greater demands on the risk bearing ability of the domestic investors.

The high net-worth individuals and retail investors have so far during the current bull phase concentrated their energies on revaluing the mid- and small-cap stocks. On the other hand, the overseas funds have been concentrating largely on the revaluation of the benchmark index stocks.

This has made the pivotals fluctuate depending on the fresh overseas flow. But there is a growing feeling on the Street that mid-cap stocks have reached their short-term peaks.

When greed and fear evens out, there descends a lull on the stock market.

It appears that there may not be fresh rally before the Budget but after it when the new proposals would sink in.

Fresh attention from the overseas funds may again lead the key indices to enter higher levels. However, sustainability of future push would depend on the change in domestic investors' perception of new valuations. In the short-term, aluminium and select IT stocks are likely attract fresh investments on expectation of improved margins.

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