The Hindu Business Line : Overseas fund flow may be negative in short-term: Analysts

Negative flows
Basemetals.com expresses concern over the "speculators, who were riding holding on to the coat-tails of the large funds
Fear of global economic slow-down and rising inflation concerns in the US also changed the global fund outlook

Kolkata , May 15

Equity and commodities analysts today said that overseas money flow to the Indian equities is likely to be negative in the short-term, but the domestic liquidity may pave way for an early revival.

Ms Shahina Mukadam, head of research of IDBI Cap, said that in the past one year the domestic metals stock had got a premium because of the global upward price trends.

However, the present correction in the global commodities may not be reflected beyond a point in the local metals stocks here as the domestic demand and supply situation is not identical to the global markets.

The recent rally in commodities and emerging market equities was being fuelled by investment and hedge funds, which had sought to beat returns in other asset classes.

Fear of Japanese interest rate hike also played a crucial role as cheap Japanese money was thought to be largely behind the long positions in the international commodities markets, said Mr V.K. Sharma, Chief Analyst of Anagram Stockbroking.

Speculative Interest

According to a metal analyst of Societe Generale, a French investment banker, the speculative interest had taken upper hand over the fundamentals (demand-supply situation) in recent trades in copper across the globe.

In the first week of May, International Wrought Copper Council had expressed concern over severe difficulties its members faced in financing deliveries.

Today morning, BaseMetals.com, an international market watcher, said: "At the end of last week, it appeared that the powers-that-be may have encouraged some of the large polarised position holders to do some off-market deals to help defuse the tense copper market. The deals were thought to be between banks and funds and the Chinese and the funds.

"If this has indeed happened, then it may well have removed the detonator that could have sent copper prices skyrocketing". It expressed concern over the "speculators, who were riding holding on to the coat-tails of the large funds".

"Overall, we feel that after all the rumours of last week, the potential exhaustion gap on Thursday and the lurch to new high ground in copper, aluminium, zinc and nickel, we may well see a correction unfold. Although this may not be the end of the bull market for metals, if deals have been struck then it could lead to a correction that might mean the market has to consolidate for longer than a few days. Indeed the consolidation may also involve a volatile period of trading as the market tries to find a level that is more in tune with the fundamentals again".

Analysts suggested that global fund managers would be forced to have a re-look in the short run at the returns, currency and interest rates.

"It may change the direction of global fund flow to different asset classes.

In the immediate term, profit taking in Indian equities is a likelihood", said an analyst with foreign broking firm.

Fear of global economic slow-down and rising inflation concerns in the US also changed the global fund outlook, analysts said. The International Energy Agency on Friday lowered the crude demand projection for 2006. The IEA expected the average demand to slide to 84.8 million barrels per day from the previous forecast of 85.1 mpd. It felt that the soaring prices may hit global consumption. The official data released on Friday suggest that Chinese imports of crude slipped 1.8 per cent in April, for the first time in 2006.

A recent survey by Michigan University showed that the US consumer sentiment hit the lowest level since the strike by Hurricane Katrina in 2005, as petrol prices hovered around the all-time high.

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Overseas fund flow may be negative in short-term: Analysts