The Hindu Business Line : Benchmarks may see limited movement

VOLATILE ZONE: A man passing the new Bombay Stock Exchange broadcast ticker with live quotes of stock in Mumbai on Friday. The Sensex, which slumped earlier this week, recovered in the last two days. - Paul Noronha

The short-term prediction on equities market is always difficult. But when the stocks are space-walking, there are earthly reasons for going wrong.

Neither the current volatility on Dalal Street has precedence, nor is the present height familiar. In such a time the known definitions assume new connotations.

A roller coaster ride left the benchmark index undoubtedly down at the end of the last week, but kept it within a range that is not strictly negative in the short-term perspective.

Liquidity flows continued to support the sentiment as expected.

Shock & awe

The CRR hike and fall in monthly IIP Index growth did not bring about a trend reversal. But, it seems, psychologically the market has turned onto a mode that could conventionally be described as consolidation.

In other words, Newton's third law may not necessarily work.

This week the Sensex and the Nifty is unlikely to make a great move upwards. At the same time, limited weakness is definitely ruled in.

Lower tops and lower bottoms could shape the charts for the indices.

In the backdrop of strong earnings expectations in the third quarter, "holds" are preferred moves than sell-offs. One needs to have compelling negative signals, which have not really emerged on the horizon, to break the status quo.

For the seasoned Dalal Street players among the overseas funds, the strategy for now is to take selective profits.

Simply put, the perception of valuation will determine the exit or entry in a particular stock. The near-term consolidation is likely to be used by some as a buying opportunity.

Consider, for example, Aberdeen Asset Management Asia's recent view. "Although Indian companies are by no means the cheapest, relative to other regional markets, however, and more importantly, earnings continue to exceed expectations in the companies that we invest in. Our ground-level observations, stemming from recent visits to the country, were positive and we found much to be encouraged about in the private sector. The country's numerous high-quality companies, and their ability to flourish amid the bureaucratic inefficiencies and creaking infrastructure, are a testament to the professionalism of management on offer. This is evident, not just in the subsidiaries of multinational companies, but also among local family-owned businesses ... At the opposite end of the spectrum, however, are the State-owned enterprises, which though well-run, remain subject to the demands of the government's social policies - oil giant BPCL is a case in point, with profitability coming second to controlling oil-induced inflation".

The domestic mutual funds, obviously has different tactic to play in the market. Of late, they have not only net sellers in the market, but also been churning portfolios a great deal. This is partly because their perception of valuations and partly owing to performance pressure. These compulsions are unlikely to change dramatically in the short-term in a year-end environment.

Other sections of investors also appear to be postponing major investment decisions till the first shower of quarterly results in the first fortnight of the New Year.

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