The Hindu Business Line : Market may struggle to maintain intermediate recovery

10K ONCE AGAIN: A file picture showing an investor with a cap raising his hands at the Bombay Stock Exchange Jeejeebhoy Towers on Dalal Street reflecting the mood of the Sensex, when it touched 10,000 on February 6. - Paul Noronha

Because of low participation, Sunday's one-hour trading could not throw up any fresh indicative trend for this week. However, it did not disturb the broad valuation mode that was set during the last week. But a swing of about 125 points on the benchmark index underlined the dominance of trading mentality on the Street.

As predicted in these columns, whole of the last week the domestic market attempted to consolidate and the trading volumes also improved. The Sensex finished above its 200-day moving average, handsomely over 10K mark. The mid-cap stocks also showed signs of joining the bounce-back signalling increase in short-term confidence level. This week, however, the market may struggle to maintain its intermediate recovery trail and may even snap it temporarily. Though cautious bargain hunting and short-covering in the cash market before the expiry of the June contracts in the derivatives segment may try to drive the Sensex and the Nifty up, but on every clear gain, stocks are likely to witness greater supplies, creating price resistances.

The market mood and the liquidity trend suggest this week's movement range may remain tight, with a negative bias. The market-markers are unlikely to consider directional calls for the medium term in a hurry.

Nagging unease

The long-term players, both domestic and overseas, have tested and mildly aided the retracement process of June so far. This set of investors is likely to be on the sidelines or turn sellers owing to global uncertainty over the direction of interest rates and inflation.

Uneasy FIIs turned net sellers last week to the tune of Rs 288.70 crore. The local mutual funds played a role of contrarians through a net buying of worth Rs 66.56 crore and largely led the consolidation process in the domestic market. However, increasing risk aversion among the global investors has forced the overseas fund managers to go slow on the Indian equities.

An apprehension of a continued upward trend in the interest rates and a cost pushed inflationary trend in the medium-to-long-term in all the markets have grown over the last one week in the absence of any indication to the contrary. It is more or less accepted that the days of low risk and high return are over after the May sell off in the emerging markets.

The global liquidity flow towards equities as such is currently being influenced to a very large extent by sentiment and not by fundamentals.

Fund managers, domestic as also foreign, are eagerly looking up to monetary policy-makers and the Governments for rate signals and inflation containment measures. In this situation, stock market's price discovery mechanism is likely to remain impaired by absolute short-term play of psychology.

Reflection of global uncertainty on Dalal Street may partly be manifested in high volatility and partly in slowing down of the recovery process.

Re-emergence of Indian equities as a less risky bet in the high rate regime would require clear moves from the authorities. The RBI and the Finance Ministry are aware of the emerging dynamics. Dalal Street is also prepared for a waiting game.

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