The Hindu Business Line : Liquidity may decide market direction

LAST week, Dalal Street struggled to keep the sentiment flag flying; and could not quite succeed. The benchmark indices slipped raising apprehensions of a further downward drift. At lower liquidity flow, risks seem to be running higher for premium calls.

The market-markers, after a few feeble attempts to shore up valuations, withdrew into a shell to wait for sunny days. Though FIIs were net positive in their investments last week, their activities were still low-key.

The mid-cap stocks also seemed to look for breathing space after a reasonably spirited run.

Classroom on the Street: Market's current disposition provides an ideal study in social psychology. Yesterday's bulls have become today's bears. Often financial markets are analysed from a simplistic perspective of interplay of herd mentality and an eternal fight between bulls and bears. But in this live laboratory, group behaviour is shaped by a combination of instincts and tempered by heterogeneous factors. All these are broadly justified as part of the sentiment; and not as a mean of rational judgment.

Consider the sudden dip in sentiment in IT stocks last week. It is futile to search for logic in the change; except for the fact that the selling exemplifies the rationale and rest all are justifications. At the end of the day, the apprehensions overtook hopes; and the investor groups changed positions depending on their interests.

Perceptions are tradable on the market. Hence, apparent contradictions are not always real. Lesson is that market behaviour cannot be straight-jacketed.

It is also interesting to note that the stocks outside the benchmark indices were moving up for a brief while on their own steam, but towards the end of the week succumbed to sentimental fluctuation.

Next week, market may follow the distinctly weak trend that has developed during the last two trading sessions. However, a sudden surge in liquidity may change the scenario altogether. And it may be justified as a widespread bargain hunting exercise. The result would, of course, be a change in market course without perhaps any appreciable movement in fundamentals.

For individual investors, times like these are occasions for testing their strategies and then chart out the respective course in keeping with the risk appetite, return aspirations and the timeframe of investments.

The net result thus may not be a secular trend, but a broad trend, which may have different nuances for different segments of market players in the short-term.

Skeleton in the regional cupboards: Mr P. Chidambaram, one of the few Finance Ministers who has kept himself abreast of developments in the stock market, reminded everyone last week that the skeletons of 2001 scam still keep rattling in the regional bourses. It would be worth investigating how the RSEs, which have gone moribund and have become a breeding ground for "unscrupulous" brokers and sub-brokers, despite having SEBI appointed officials or administrators in the post-scam period.

Instead of taking up the tough ask of cleaning of the Augean stables, and putting them back on the way to recovery, all these public institutions have been reduced allegedly into a den of small-time crooks.

The capital market reforms and investors have so far by-passed these bourses. But a significant portion of the sizable assets can still be available for improvement of the market.

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