The Hindu Business Line : No clear signal emerging

The upbeat mood of the market was lost suddenly with steady flow of negative news such as shrinking investor-risk appetite, rising volatility and firm inflation rate painting a confused picture. The benchmarks - BSE Sensex and the NSE Nifty, which saw the highest order of intra-day volatile condition in recent times - finished on a flat note in rough trading.

What is FIIs' game plan?

When in adverse conditions what should one do? Track where the smart money is moving. But watching out foreign institutional investors' trading pattern to get some clue is not that easy as they throw up even more confusing signals. FIIs have been net sellers in the cash market this month so far to the tune of about Rs 2,440 crore and net buyers of about Rs 2,307 crore in F&O market. Even in the F&O segment, their open positions went up significantly only in options segment, while they reduced their positions in index futures and remained almost neutral in stock futures. The message is loud and clear - expect more volatile condition.

Mutual funds have been net sellers by about Rs 339 crore till now..

Inflation - still worrisome

Inflation rate, which displayed some kind of moderation for the last couple of weeks after several Government initiatives such as raising interest rate, cut in petro prices, once again started to look up. Inflation edged higher to 6.10 per cent for the week ended February 24 though it remained below a recent two-year peak of 6.73 per cent. This has once again raised doubts in some quarters whether the RBI would raise interest rates further. The Finance Minister, Mr P. Chidambaram, had said that the Government fully supports monetary measures taken to tame inflation and will back any other step taken by the apex bank to ease surging prices. He had also indicated that he could consider taking measures for lowering prices of milk, oilseeds and fertilisers to tame inflation that is still above the RBI's threshold level.

Liquidity and global cues

Though yen recovered somewhat against the greenback, there is still some nervousness in the market. While the European Central Bank raised its benchmark interest rate by a quarter of a percentage point to 3.75 per cent, the Bank of England (BoE) chose to keep its benchmark interest rate unchanged at 5.25 per cent, which could tighten the liquidity flow.

The US slowdown is another key concern. The risks for sub-prime mortgage lenders seem to be spreading. Analysts believe that there is further downside risk and see several ways in which housing troubles can develop into weaker growth, higher corporate defaults and wider credit spreads.

There is no clear trend emerging for the week due to sharp volatility, with stocks being offloaded each time as they recover. However, with investors reluctant to build up positions due to worries about global rate hikes and a US capital goods sector slowdown, the benchmarks could see some downward pressure. Moreover, many retail investors had started booking profits from December itself, believing the markets had peaked, leaving the field to hedge and institutional players. Cement stocks would be under pressure following the manufacturers agreement to hold the prices for a year.

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