The Hindu Business Line : Market may see downtrend on lack of buying

Last week market paused to re-evaluate the evolving situation around. However, negatives or positives do not get priced in within a span of a week. During a consolidation phase, the price movement is also not necessarily unidirectional.

In the short-term, Dalal Street may throw up contradictory signs as it prepares to digest broad economic and corporate developments. Market has begun to factor in emerging negatives, which may impact corporate earnings in the medium and long-term.

As of now, earning estimates are getting reduced by 5 to 8 per cent. But in a dynamic situation, it may not be surprising if going forward estimates get revised more often than usual.

There is almost a consensus that operating margins would be under increased pressure in the first and second quarters. Investment strategists are trying to look beyond the first two quarters and assess the scenario third and fourth quarters.

Sitting on the fence

Some of the market participants seem to suggest 2009-10 should be horizon one could look at with fair measure of optimism. They seem to suggest, even the first two quarters may not be as bad as the pessimists attempt to make out.

In the short-term, overpowering gloom has left many sit on the fence. The contrarian play, at least theoretically, should start now if one is positive about India and emerging market prospects in the long run. But very few are still to adopt that strategy because none is sure of timeframe and extent of uncertainty ahead.

The overseas investors appear to be in a risk-averse mode as far as Indian equities are concerned. If one assumes that the aversion stems from the growth and earning uncertainties, the same could apply for the domestic investors too.

Pessimists do not rule out an earnings collapse in the first two quarters of the current fiscal.

Crude reality

In the worst-case scenario, corporates would be at their wits end to control cost and falling margins, while the Government would be busy fire-fighting the inflation and a slowdown. The price movements in the crude oil and rupee movement against dollar would be crucial in the next few quarters for the corporates.

But, at the end of the day, the sentiment, which dominates the proceedings in the short-term, has to give way to realities on the street.

This week, indices may suffer from a negative bias simply on lack of buying. Till the first quarter results, corporate news flow would be keenly watched and the pricing-in could be more aggressive than normal.

Investors’ orientation now is likely to be more stock-specific than reflecting a broad and sectorally skewed trend.

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