The Hindu Business Line : Benchmarks need extra strength despite bullish undertone

A FILE PICTURE showing an elated stockbroker looking at the Sensex graph, which crossed the crucial 12,000-mark again after a sharp dip in May crash. The Sensex still remains well above the 12K mark but short of its all-time high at 12671. - Paul Noronha

Dalal Street is not long enough, perhaps one of the shortest in the country's business capital. But all the fund avenues appear to be leading to D Street as the economy gears up for double-digit GDP growth way ahead.

Magic in air

Even as the Dow Jones Industrial hit its all time high last week and a benign interest regime is almost taken for granted, global fund managers seem to be readjusting their focus on Indian equities.

Recent trading evidence suggests that the mid-year correction in the benchmark indices has not deterred equity strategists. The confidence to play with greater risk is not merely because of better quarterly earnings or relatively higher return expectations, but emergence of stronger long-term growth profile of the economy among the globally limited asset classes.

A fresh re-rating of the Indian equities is definitely underway as conditions for acceleration in growth momentum improves.

Does the fairly valued Sensex, currently hovering shade bellow its scaled peak, have still room left outperforming itself?

Room at the top

The liquidity indicators suggest that the equity market may expand more in breadth than in height in the short-to-medium term.

The corporate results for the second quarter are unlikely to negatively surprise the fund managers. However, the market making focus having been shifted to mid and small cap stocks, the benchmark indices would require strong impetus to move forward.

The Infosys guidance, as in the recent years, may set the broad tone for the market. The heavyweight stocks need to do better than the street expectations as bottomline and topline growth have already been factored in.

Core problem

Last week, FIIs and the local funds opted for selective profit taking in the top indices stocks.

The Sensex last week fell below the 10-week average clearly showing exhaustion. However, positive news flow regarding domestic demand generation and removal of road blocks in the infrastructure sector as also a further fall in crude prices may attract money towards blue chips.

Should the authorities be able show stepped up activity in the much talked about infrastructure sector, the stock market would not hesitate to add additional premium to the heavyweights.

Market consensus appears to be positive for stocks in the sectors such as fertiliser, cement and tyre in the near-term. Small and mid-cap stocks are likely to outperform the benchmark indices - the Sensex and the Nifty - on profit taking and reallocation of funds.

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