The Hindu Business Line : Dalal Street may witness choppy trend

Sudden turn of events on the weekend in Pakistan sent Dalal Street experts pondering over its impact on the “feel-good” factor that has slowly been enveloping the sub-continent in the past few years.

Apart from the non-starter Iran-India via Pakistan pipeline project, and some attempts (recently top TCS officials, including Mr S. Ramadorai, were in Lahore, Karachi and Islamabad, where they held talks with local business and political leaders on setting up a software centre) at building business bridges, the investment relations between the two neighbours still remain largely wishful thinking.

Missing link?

However, the overarching factor of foreign investor interest in the sub-continent currently dominates market mind space.

Consider an October Merrill Lynch report on India and the emerging sub-continent. It suggests that global investors change their perception in a changing investment landscape and goes on to say that away from rancid politics, abject poverty and internecine civil war, big changes are happening in south Asia. “It is a virtuous economic behaviourism that is at the root” of the region’s economic renaissance,” the report observes.

One may discount this observation as an exercise in hard sell by an investment banker in search of better returns. Nonetheless, it catches a trend in emerging thoughts.

If tomorrow Karachi Stock Exchange 100 Index sneezes, the BSE Sensex is unlikely to catch cold, but the overseas portfolio investors, who have poured in more than $1 billion into Pakistan in the past one year, may need to readjust their short-term strategies.

As it is, Dalal Street is likely to witness choppy waters way ahead. The forthcoming petro-product price hike would exert inflationary pressure, the central bank’s greatest bugbear.

In a scenario, where the international financial system is undergoing a marked changeover, the RBI has not shocked the market in maintaining its policy stance. The Fed’s move on interest rate also maintains the status quo in its approach in handling the impact of the credit crisis and the falling valuation of dollar. The external flows have not turned negative and chances are that it would not do so in the short-term. The domestic flows seem to be effectively doing a counter-balancing act.

However, trading strategies suggest that sectoral weaknesses and strengths are being exploited to the hilt. Even within sectors, pockets of valuations are not being spared, while money is flowing out of the laggards. This week, the last before the new trading year, the heavyweights are likely to consolidate within a range. But activity in the mid-cap space may increase.

It has been a cracker of a year and the forthcoming one may turn out to be even noisier. Happy Samvat on roller-coaster!

(Responses may be sent to jayanta_mallick@thehindu.co.in)