The Hindu Business Line : Dalal Street may see upturn

THE domestic stock market seems poised for a sharp upturn after a phase of correction and consolidation. A section of local market players appears to be buying the Nifty futures aggressively. If the trend continues this week, the Nifty spot may buoy up through short covering by those who had gone short.

This has happened despite application of stamp duty on the proprietary derivatives trading by the Maharashtra Government, which probably had a hand in drying up volumes in the derivatives trades in the last few days.

According to indications emanating from Mantralaya in Mumbai, the State Government may relent after a review the stamp duty issue this week.

Incidentally, the FIIs remained net buyers last week in the Nifty futures, albeit at a much lower scale than the previous week. In the cash, investments by overseas funds were net negative, while local mutual funds were net buyers.

The investment strategy of the overseas funds for the Indian equities in the short-term is yet to be etched out sharply. A mild draw down compared to their total investments can be seen as maintaining of status quo in absence of a firm allocation plan.

However, if indices surge upwards, they may be quick to jump onto the bandwagon.

In other words, there may be a subtle role reversal as far as the market leadership is concerned. In the rally towards the 6,900-odd points level on the benchmark Senex, it was FIIs who had led the market with a strong liquidity flow. This time around, the domestic bulls could draw them to a renewed aggression.

Interestingly, the domestic bears are still on the prowl on the Street. If the bulls can trap them handsomely in the derivatives before the expiry of May contracts, things may turn dramatically positive for the key indices on the Dalal Street. It seems that the coming two weeks are likely to unveil a volatile script.

But in the shadow of drifting benchmark indices, the mid- and small-cap stocks are having a ball, many of which are either at or near their peaks. This surge, reflected in their indices, is not triggered by speculative operations, but because of their improving fundamentals.

The latest inclusions in the Morgan Stanley Capital International India Index are definitely a tribute to arrival of some of the local mid-cap equities.

Though benchmark indices would continue to influence the overall market sentiment, a large majority of the stocks outside key indices has gathered enough strength to withstand a serious correction.

From the perspective of thematic investment stories or sectoral growth strategies, the space for smaller equities has proved to be the liveliest theatre of action in the last couple of weeks and is likely to remain so in the immediate future.

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