The Hindu Business Line : Another bumpy week on the cards

Market this week is likely to be at its speculative best. Should the Left withdraw support on Monday; shorts in the market would be covered instantly. But it may be the beginning of yet another sentimental roller coaster ride.

A possible new political equation at the Centre, possibility of hastening of the process leading to signing of the 123 Indo-US nuclear deal, the likely opposition to it and a consequent disturbances may not be conducive for a clear unidirectional move for the market.

Divided House

Market participants seem divided over the impact of the foreseeable political churning. More importantly, it is unclear whether the progress towards nuclear deal would mean fresh positive for the equity market. Some of the strategists feel that a definite progress on the n-pact front may restore confidence and credibility among the overseas investors. But all are not so sure. A section of the market observers feel that the market has factored in some positives on that score already. Even if the developments favour a path towards an eventual deal, it would have to contend with some months of uncertainty.

Infosys first quarter results and guidance on Friday is likely influence the sentiment for the IT sector as a whole as it would throw up indications how the currency hedges have worked when the rupee has been falling against the greenback. Edelweiss results also would test how the brokerages have been faring in the rough market conditions.

Industrial production and inflation numbers would also play a role in the short-term investment strategies if they were not in synch with the expectations or apprehensions.

Speculative binge

The crude oil price movement internationally, however, may pull off a surprise in the short term if the US legislators take a decision fast to crack down on speculative binge in the crude market through higher margins for futures/options contracts. The US law makers, feeling the heat of higher energy costs, have proposed that the regulator reins in oil market speculators by, among other things, a hefty increase, as much as 25 per cent, in line with practices prevailing in the equities market, in margin requirements.

Lawmakers are also considering barring pension and hedge funds from investing in commodities altogether.

Currently, many US investors in crude oil futures get away with placing initial cash collateral, as margin, of just 5 per cent of the underlying position value. The Commodity Futures Trading Commission (CFTC) data suggest that speculators have increased their share of outstanding futures contracts to about 70 per cent of the total. Commodity index funds and other pooled investments have been pouring in “hot money” in crude, one of the best performing asset classes in recent months after emerging market equities tumbled.

Analysts apprehend that speculative bubble could burst if harsh measures are taken in July and the crude could correct sharply. But passage of some of the 9 bills proposed to rein in the speculation is itself a subject of speculation as time is short and procedural path is long winding and also fraught with opposition from strong a lobby.

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

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