The Hindu Business Line : Further consolidation in markets likely

A slew of positive news such as Standard & Poor's upgrade, India Inc's good quarterly show, favourable RBI signal, despite raging inflation, and the Tata-Corus deal boosted the sentiment.

Who's buying?

However, it seems institutions did not back the recent surge in the market.

According to SEBI data, mutual funds were net sellers in January by Rs 1,342 crore, while FIIs were net buyers by just Rs 492 crore in January.

However, FIIs' net buying remained insignificant at Rs 22 crore if one considers the first two days of February data, indicating that they are in profit-taking mood.

With both domestic and foreign institutions not supporting the market, who is buying?

Though FIIs are cautious, they are not pulling out the money but are instead practising in portfolio churning by buying into index heavyweight stocks in small quantities while booking profits elsewhere. Mutual funds, on the other hand, are piling up their cash positions to invest in the IPO market.

According to market observers, this time the rally is mainly because of a group of high net worth individuals, who are buying heavily whenever the benchmarks slide .

One more Amaranth

One more hedge fund has reported heavy losses. According to a Wall Street Journal report, metal trading hedge fund Red Kite's $1-billion fund lost 20 per cent in the year to January 24. Following this report, zinc, copper and aluminium plunged.

This revives the memory of Amaranth Advisers LLP, the hedge fund that lost $6.6 billion last year on natural gas trades.

It may be recalled that the Amaranth collapse was one of the major triggers that shook the global markets in April-May last year.

The selling pressure for metals, which are already in bear phase, might aggravate further following Red Kite's loss. The report has already put pressure on the hedge fund as it faces heavy redemptions.

In a move to prevent investors from pulling out their money in a hurry, Red Kite has asked them to approve an amendment that would require a longer notice period before quitting the $1.5-billion fund.

Consolidation mode

Consolidation phase is likely to continue in the market this week too.

The pre-Budget rally has already set in the market and it may not be get disturbed unless some upheaval, on the political or economic fronts, shakes investors' confidence.

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