The Hindu Business Line : Consolidation mode may extend

HAPPY MOOD: Stock dealers delighted with the upward move of the market last week in Mumbai as the BSE Sensex jumped by about 3 per cent. - Paul Noronha

A Business Week reader nicknamed Dr Reality after the May meltdown in a June 13, 2006 posting on the online edition of the magazine wrote: "... .I hope the dozens of irrational investors realise that India is not quarantined from World markets and cannot be running in the opposite direction to the rest of the world. The Bombay Stock Index is headed back to 5000 or lower. .... Cut your losses and run - you will thank me in another six months."

Dr Reality may sound unreal. But there are downright pessimists among overseas investors, who still think Indian equities are on steroids and the Dalal Street benchmark indices are headed for a major slide.

The general breed of long-term foreign investors, who are hooked on to the emerging markets and India, however, is gradually loosening its purse strings from June onwards. FII investment in August 2006 (till August 10) has been $231.30 million compared to $252.20 million in whole of July and $105.70 million in June.

In the backdrop of the May 2006 overseas funds mop-out to the tune of over $1.6 billion, it's a pretty picture indeed. In the second half of 2005, foreign investors were, however, pouring $1 billion a month.

Between May end and July end this year, the total number of registered FIIs have increased to 934 from 916.

Indian equities remain unique for a large majority of overseas funds - a long-term bet among a whole range of asset classes.

Does the Sensex, after the recent corporate earnings reports, represent a valuation disconnect for the overseas investors? Going by last week's trend, there does not seem to be any worry in the near term now. FIIs were net buyers on all five days and increased their level of investment compared to the previous week.

Local mutual funds, which are net buyers in August so far, stepped up their investment last week. In July, mutual funds were net sellers worth Rs 81.71 crore but in the first 10 days of August their net buying stands at Rs 226.18 crore.

The Indian economy and the stock market have thrown up many surprises in the past couple of years. Particularly, the stock market stubbornly refused to be straight-jacketed in the face of terrorism, flare-up in crude prices, interest rate worries, inflationary pressure and the current account deficit.

This week, dotted by holidays, is likely to see consolidation above 11K on the Sensex. The overall market breadth may also improve at a better relative liquidity. The long-term investors are likely to remain net buyers.

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