Financial Daily from THE HINDU group of publications
Monday, Jan 16, 2006
Financial Daily from THE HINDU group of publications Monday, Jan 16, 2006 |
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Stock Markets Markets - Outlook Columns - A Ringside View Sensex to be sensitive to Q3 Jayanta Mallick
FEAR of stretched valuations caught up with the market last week and liquidity flow suddenly went into a reverse gear on Thursday. It seems Dalal Street has finally opted for a short-term correction and consolidation mode. This is also perhaps the first indication that the superlative return of 2005 may not be repeated in 2006. Reliance, the first among the five that announced its third quarterly results of the Sensex stocks last week, punched a hole in the earlier euphoria. Market quickly reacted to the dip in the net profit and ignored crucial numbers like a one-time write off of Rs 750 crore. Back to basics: This week, the business of racing ahead of fundamentals is likely to be replaced by valuation readjustment in line with the performance and the reworking on the growth prospects. The readjustment process is also likely to lend volatility. As performance of each individual stock would be under microscope and the not the sector, the initial reactions are likely to be marked by an excess and followed by a smothering effect spread over a few days. After the first day's net buying, the FIIs turned net sellers on Tuesday and Thursday. Domestic mutual funds turned buyers in the later part of the last week, but did not match the selling spree. The weekly fall in the Sensex by around 2.76 per cent and about 2.18 per cent in the Nifty showed that the blue chips were in for a re-rating. In the next couple of weeks, when bulk of the results would pour in, the liquidity may tend to take a back seat. But it can be reckoned as short term phenomenon and certainly not be a break till the next quarterly numbers. The churning of portfolio by long-term investors is, however, likely to take place. On the other hand, the short-term players may tend to over-react. Over-expectation: According to market and corporate observers, had it not been an over-expectation, the Reliance, HDFC Bank, Infosys, TCS and Bajaj Auto Q 3 results would not have affected the market's sentimental makeup. The analysts tend to agree that the last week's dip in the benchmark indices is more of a psychological reaction than reflection of fundamentals. The market's uneasiness is also caused by the uncertainty over the ensuing valuation of Reliance entities after the separation and its effect on the Sensex and the Nifty. During the results period, the majority of the mid-cap stocks may fare better than the heavyweights and see further accumulation. However, in the small-cap stocks, which are dominated by retail investors, may witness sharp swings. Market expectations over the commodity stocks such as sugar and paper are very high. Possibility of housing interest rate hike may keep the banking stocks active. The macro-economic scenario being positive, apart from the results, any strong news may accentuate reactions in the market. The market is also likely to remain sensitive to the global crude price movements.
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