The Hindu Business Line : Sentiment turns uneasy

The equities market may flounder in the first week of 2007-08. The market appears uneasy about fiscal and monetary initiatives towards containing inflation. The rising rupee (against dollar and euro) and northward trend in global crude oil prices are also considered discomforting.

The fund managers and brokerages are cautious about the short-term outlook. Majority of them tend be guarded in terms of a directional call for the next few weeks. Some have gone ahead and predicted a serious correction in the first two quarters of the new fiscal.

Among the overseas fund circles no one seem to be overweight on Dalal Street stocks. In the last fortnight though UBS has raised its India portfolio weighting to neutral from underweight, JP Morgan has reduced its rating on Indian stocks to underweight from neutral. Citigroup still maintains a slightly underweight rating on India in its regional portfolios. For Halbis Partners, Indian stocks turned neutral in March from slightly underweight.

In whole of March, FIIs and mutual funds pumped out money in the net.

Before Dalal Street could react to the RBI's move on tightening liquidity last Friday, ADRs of ICICI Bank and HDFC Bank slid by 6.94 and 4.16 per cent respectively.

Apart from affecting the sentiment, hardening of interest rates before monsoon is likely to be seen as a dampener for consumer demand. Market's tentativeness also stems from the fact political compulsions, in view of upcoming UP elections, may push some of the economic agenda of the Government to the backburner.

Infosys' fourth quarter results and guidance next week will provide first serious indication of corporate response to the current economic environment including appreciation of rupee.

For the next few weeks, only diehard speculators seem to be ready to add premium to the current valuations. Despite continuous flow of news over M&A activity, the enthusiasm over returns growth does not seem to be rising.

The liquidity, according to some experts, is moving over to sidelines on uncertainty over forward earnings growth. The liquidity-driven momentum that partly fuelled the recovery after the February correction is loosing its steam because of this, it is argued.

However, there is no sign of any panic as yet in the market. A sharp correction is expected to find buyers at lower levels. This, of course, may cause volatility.

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