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JAYANTA MALLICK

Long-term investors may take fresh guard after booking profits

Having digested quarterly earning harvests of its 30-blue chip basket, the Sensex is likely to enter a consolidation phase in the short-term. The benchmark index this week may witness volatility - ranging between 200 and 300 points. Though in terms of numbers, the Sensex progressed last week, but the indications thrown by the advance-decline trend suggested some fatigue.

The overall liquidity being good and market mood still bullish, despite a debate over early signals of economic overheating, the downside for the Sensex appears limited. The long-term investors may take fresh guard after indulging in a moderate profit taking bout or reshuffle.

Confidence cycle

In tandem with rising business confidence levels (whether in terms of M&A activity or profits or NCAER index), the market confidence seems to be robust even as valuations are at their peaks or near peaks. The fourth largest economy in Asia and its stock market is in virtuous cycle - boosting each other's confidence at least at the sentimental level.

Investment strategists feel that the India Inc overall produced better-than-expected results and held out a promise of the next four to six quarters. While factoring in of forward earnings growth could be one of the valuation drivers before the third quarter results, corporate news flow, the macro-economic picture, pre-Budget consultation beginning this week and the disposition of the political elite would provide clues for stock or sector specific movements.

Cushioned psychologically by soft global crude price trend, the market has not taken serious note of hardening interest rate or steady growth whole sale prices. Majority of the overseas investors seem to be taking a bearing again on the Dalal Street for a medium-term investment strategy in view of deflated energy and metals prices in the second half of the year. If crude slips below $55 a barrel, as certain global players expect, Indian equities, as an asset class would buoy up further attracting increased inflow.

Season of bounty

On Dalal Street, the post-Diwali period stretching till January-end historically had generally been better than the rest of the year. A Citigroup study noted last week that Asian markets (ex-Japan) over the past 16 years offered their best returns in the three months from November through January with a median return of about 18 per cent from 1990 to 2005. If whole of this period (which broadly coincides with India's experiment with economic reforms) is considered, the Sensex has performed below this average. But in 2005, the Indian benchmark index handsomely outperformed the Asian returns average.

Based on the ratio of Asian stock prices to the values of corporate assets, the current 2.2 level is the second-highest in the 16 years studied. The only higher year was 1994, when the price-to-book value was 2.4; Asian stocks lost money that year.

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