The Hindu Business Line : Mid/small-cap stocks may take centre stage

STRONG SHOW: Stockbroker in a happy mood after the BSE Sensex zoomed 165 points last Thursday. The Sensex gained 1.89 per cent during last week. - Paul Noronha

Last week FIIs led Dalal Street investors saw opportunity in the benchmark index. As money flowed in for the Senex stocks and growth discounting took place, the index forged ahead offering one of the best returns of the year. The market has largely factored in the positives thrown up by the better advance tax figures by the corporate biggies.

Overseas funds pumped in Rs 1,177 crore in the net (taking into account provisional negative figure of Rs 119.66 crore on Friday). Local mutual funds reported marginally negative investment (Rs 15.76 crore) in the first four trading days.

This week, indicators suggest that strategists may focus more on the mid-cap and small cap stocks. The heavyweight stocks may see a degree of profit booking and a mild correction in the benchmark index may not be ruled out. But what may be a temporary setback for blue chips could pave way for pickings in mid and small-cap stocks.

The investment moves in the cash and derivatives (open interest highest since May before September contract expiry this week) signal that nobody seems to be in a mood for leaving the equities; only shuffling around.

Doubts

There are, however, people who still doubt that India and Indian equities finally may not deliver this year. For them lack of reforms (read disinvestment and complete opening up of the finance sector) and presence of Left parties on the Government are constant negatives. A section of the Congress party is also seen with strong apprehension for their emphasis on rural economy or poverty alleviation and billed as gimmicks of electoral politics.

Business Week wrote a year ago (September 26, 2005), when the Sensex had barely crossed 8k mark: "Even Sonia Gandhi, the powerful Congress Party leader, is acting more populist than reformist... . She is pushing a rural employment scheme that would guarantee one member of each rural household 100 days of labour. That could blow a $30 billion hole in India's finances and boost the fiscal deficit, already 10 per cent of gross domestic product. It would also soak up funds needed for infrastructure improvements".

However, these opinions have not changed portfolio investment climate for India. Experts feel Congress' recent focus on agriculture is unlikely to change the investment strategies for Indian equities.

Comforting sentiment

The biggest comforting factor for the sentiment at this stage is slide in the crude and gas prices as speculators have reversed their bet on the energy commodities world over.

Globally some of the cash that had been going into oil and gas has switched to stocks and bonds, fuelling recent gains in both of those markets (Dow is roughly 190 points away from its all time high despite slowdown in housing and manufacturing).

But all of the speculative money has not left the oil and gas market and instead of one-month bets, speculation has been shifted to three to four months.

Among speculative investors in the crude and gas futures in the international markets, the number of bets on rising prices has dropped by more than 50 per cent since mid-August.

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