The Hindu Business Line : Recovery may continue

LAST week, Dalal Street recorded a mild recovery as a correction in short-term outlook set in. However, the liquidity is yet to cover a lot of ground to match the February-March average.

FIIs reported a net outflow, while the domestic mutual funds generally remained buyers in equities.

Mixed economic data and earning reports by corporates helped the US stock indices move up. But in Asia, benchmarks in Japan, Taiwan and Korea finished in the red. The Sensex and Nifty improved by 1.57 per cent and 0.56 per cent respectively.

This week, continuation of the recovery trail in the Sensex and Nifty is well on the cards, as chances of negative surprises from corporates appear to be somewhat unlikely. However, a sudden convulsion in the global commodity prices may unsettle the apparent stability.

FII selling pressure is also likely to abate on increasing bargain-hunting opportunities. But a significant rise in the overseas fund flow may not start immediately even though, for a long-term player, current valuations have become attractive. The global investors before taking a fresh call on allocations, would like to wait till the early May, when clarity on the US interest rate trend and economic scenario is expected to emerge.

The recent fluctuations in the domestic benchmark indices provide interesting pointers to changing dynamics in market's relations with the economic fundamentals. Its impact on the investment strategy is likely to be reflected in the coming quarters.

With the changes in the market-economy correlation, Dalal Street is on the lookout for a new bellwether. In the recent past, Infosys, Reliance Industries or HLL had reflected investors and market makers' aspirations.

In the reshuffle, a new leader may emerge from the manufacturing entities. The coming fortnight would throw up clues for a natural selection from among the heavyweights. The chosen one would have to match investors' forward growth fancy, provide depth and breadth.

Last fiscal, manufacturing sector broadly recorded an excellent growth despite lower-than-expected monsoon. The stock market had a strong rally. Some commentators have suggested that the manufacturing sector is becoming independence from agriculture growth on the back of strong urban demand. In view of this newfound strength in the manufacturing sector and a relative weakness in the IT sector's outlook in the medium term, a gradual shift in investment priority from may occur.

Domestic metals and mining and infrastructure sectors hold out the greatest possibilities in terms of growth acceleration in the medium to long-term. The overall global commodity cycle upswing is likely to continue. As fresh investments are lined up towards these sectors, steady valuation mark-up on the bourses is a likely scenario in the quarters ahead.

In all probabilities, the stock market may set a definitive trend from May onwards as monsoon indications would pour in and completion of results season would mark the end of preparation of the ground.

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