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Jayanta Mallick

The small-cap space, though roaring, is still haunted by corporate governance issues.

CLOUDBURST continues in 2006. A steady stream of liquidity made the Indian stock market move on from where it left off in 2005. Dalal Street ignored concerns of overstretched valuation of the blue chips and rise in global crude prices.

Steady downpour: Overseas funds poured in more than Rs 1,900 crore in the net till Thursday. Though local mutual funds played the contrarian strategy, the benchmark indices finished with handsome gains over the last week.

Going by the trend, some assume that the benchmarks may postpone a consolidation phase. Apart from portfolio investment money, FCCBs, private capital funds activity and even overseas remittances are keeping the market warm this winter.

Hectic M&A moves have also charged up the overall atmosphere. Domestic interest for the equities is at its best.

Mid/small-caps attract buzz: The thickly populated mid- and small-cap segments have begun to show signs of a heightened buzz on fresh attention. In overseas investors' perception, thousands of local stocks falling in the middle category having market capitalisation in the range between Rs 500 crore and Rs 4,000 crore are proving to be an unfolding opportunity.

Both domestic and foreign funds have started aggressively pursuing the developments in these stocks with gradual accumulation.

Reform's children: Some of the PSU stocks in this segment spread across various sectors are also drawing added attention from the big players in the expectation of divestment and mild doses of reforms possibilities. In the short term, some of the PSU stocks are likely to spurt on special dividend booster.

Many of the PSU stocks fetch a discount in terms of market valuation compared to their private, particularly MNC, counterparts simply because of the perception that they are subject to the whims and fancies of politicians and bureaucrats.

Fresh flow of money to some efficient PSUs may force re-rating in the near future.

The small-cap space, though roaring, is still haunted by corporate governance issues. The market regulator has been hemming in the errant promoters and attempting to infuse transparency in their investor relation. A proactive mindset is still amiss among a large section of the owner-driven listed public entities.

As the quarterly corporate results season is expected not to report any major hiccup, the mood is likely to remain bullish for the market this week despite volatility.

Disconnect: Among the worrying factors in the short-term is the political establishment's disagreement over the reforms steps scheduled for the current year. This, however, may provide sudden excuse for a market correction. Even though the global focus deepens on the Indian economic reform momentum, differences and oppositions arise over the effects of changing process. Many in the political elite are not convinced by the rising Sensex.

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