The Hindu Business Line : Market may move up further

Dalal Street last week saw indices move up keeping the overall market breadth positive. Overseas institutional investors turned net buyers and operators have become a little more active in the derivatives segment than in the cash segment.

That’s good going in the short-term perspective. But scepticism has not come down in any significant way and the consolidation period is not over yet.

Absence of additional negative news on top of inflationary pressure, high crude price and unusual currency movements may have encouraged operators to bat on the front foot, but strategies still seem to be short-term.

The valuations, in relation to market’s own records and its peers in the emerging markets, are still cheap, according to some long-term players. But, actual investment figures are yet to reflect the expressed conviction, let alone enthusiasm.

In terms of strategy, rebalancing among sectors according to the changing cues has been one of the visible traits of the market of late. But the moves are understandably hemmed in by risk aversion and caution rather than active trading strategies for long-term.

The re-adjustable investment strategies stem from overall economic atmosphere, which remain fluid and still does not help in formulation of sustainable tactic. As a result the liquidity is still restricted.

The investors’ general mindset suggests that cash is now the king; everyone including the brave hearts wants stay in cash more than in assets, even though they appear “cheap”. The different aggressive valuation metrics, which were in vogue until recently such as replacement cost, holding company discount or embedded valuations (goodwill based on promoters’ past execution skill), have almost been abandoned. The fundamental elements such as EPS growth are also carrying a discount tag relative to last year.

Equity market spawns myth and prejudices from time to time.

A premonition of a sharp collapse in the medium-term and a later recovery has broadly clouded the investing psychology around the globe. The cloud has to remove first; everything else would automatically follow.

This week market may move up. The movement of rupee, crude oil and monsoon clouds, however, would be watched more for judging the direction of the market.

Indications are that if the weathermen do not sound negative regarding timing of onset of monsoon and its possible spread, then FMCG and cement sectors could expect a positive turn in valuation in the short-term.

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