The Hindu Business Line : Short-covering may lift benchmarks

BEARS yielded some ground to bulls last week, but did not altogether leave the ring. On the other hand, bulls have stepped up pressure on the bears by buying into the May index futures. The FIIs last week also went with the bears by remaining net sellers in the Nifty futures even as the discount to the spot narrowed down further.

The FIIs' overall stance of pumping out money from the cash market continued. The domestic mutual funds, however, were clear buyers in the cash segment.

On balance, this extended the consolidation phase for the key domestic indices. But the market beyond the Nifty and Sensex thrived on robust interest from the retail, high net worth and corporate investors.

This week, short-covering pressure is likely to emerge, which may lift the benchmark indices, as the close of May derivatives contracts draw near. As long as the FIIs continue to draw money from the local market, the trading volume in the heavyweight stocks is unlikely to go up substantially. The tug of war between the bulls and the bears may lend additional volatility to the Sensex and Nifty stocks.

However, away from the likely heat and dust engulfing the frontline stocks, the upward movement in the mid- and small-cap stocks is likely to continue.

In terms of sectors, oil stocks are likely to do well in view of the proposed price hike in petroleum products. Softer bias in the global crude and metals markets could help the bulls to raise further value expectations. The theme of growth play and economic positives are getting increasingly manifested in higher market capitalisation of the mid- and small-cap stocks.

The stocks of the players directly and indirectly present in any of the spheres of infrastructure have built up a strong following among the domestic investor community. It's like a chain. If, for example, the auto stocks are speeding, the auto ancillary counters get going - be it of auto bulb makers or the tyres. If, housing sector stocks go one step up on the market value chain, then colour is added to the paint stocks. Small and medium market makers are not sparing any opportunity to scale up the counters, which do not figure in the benchmarks.

The new ideas are catching the imagination of the market fast. What is noteworthy is the corporate governance issues are at a discount in terms of valuation of a number of stocks. It is not that the suspects can only be spotted among the small and medium size companies. But in a wave of indiscretion, frequency of possibility of stumbling onto the lesser devils is more than the bigger ones.

The maturity of the market on the issue of corporate governance has been tested in the negatives in recent past. Amid the evolving regulatory framework and investor activism, caution is the watchword. In the long-term, those stocks which would be able to deliver and stand up to the scrutiny will, of course, sustain their growth in market capitalisation.

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