The Hindu Business Line : Market healthy but correction unavoidable, say analysts

The top three threats to the market now are oil prices going up to over $70 a barrel, potential hardening of interest rates in the US and Japan and any political upheaval in India, according to Mr Andrew Holland, Executive Vice-President, DSP Merrill Lynch.

"If oil prices surge, people would fear about the current account deficit blowing out of all proportions. Domestic inflation might go up and RBI will have to defend it with higher interest rates," he said.

Despite the upward surge in the indices, the breadth of the market has been narrow during the last month.

"Markets do get exhausted and run out of steam on their own. Technically, the market is looking quite weak and we are headed for a correction," said Mr Ramesh Damani, Member, BSE.

But the Chief Investment Officer of UTI Mutual Fund, Mr A.K. Sridhar, however, prefers to look at the more positive side to the market.

He says that though the market may not move to the extent that it has over the last 18 months, it would nevertheless continue to move in the `positive' ground.

"Many investors have missed the rally from 6,000 to 10,000 points in the Sensex and they are coming back into the market. Liquidity is strong and there is no immediate threat of it drying."

Market experts, across the broking, mutual fund and foreign institutional investor community, have no worries about earnings season.

Though the broad markets would take cues from the numbers announced by corporates, the expectations are that these would justify the current valuations. While the price-earnings ratio is looking stretched in some sectors, there is confidence that the earnings season would not be an unpleasant surprise, according to an analyst.

"Most sectors are fairly priced, there is nothing cheap in the market now. We need to watch the March 31 and June 30 results. Markets would look at these quarters to get confirmation of growth," Mr Sridhar pointed out.

Analysts opine that even if the liquidity flowing from foreign institutional investors is affected for some reason, domestic liquidity will step up for the short term.

Mutual funds have attracted large sums of money for their new fund offers recently, with Reliance Equity Fund creating a record at over Rs 5,700 crore collected during the new fund offer.

So far, the markets have ignored all worries. The indices have had a steady rise despite the bird flu, terrorist attacks and other events. A correction is unavoidable, but its timing is the million dollar question now, market experts say.

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