The Hindu Business Line : Market may witness range-bound movement

Betting on deal: A file picture of reactor building two at Koodankulam Nuclear Power Project site at Tirunelveli in Tamil Nadu. Will the NSG clearance of nuclear deal help Indian markets’ fortune turn positive?

Dalal Street, for a change, may set the tone of the Asian equity markets on Monday. Normally Asian markets take the overnight or weekend cues from Wall Street. The Nuclear Suppliers Group’s final nod to the India-specific waiver on Saturday is likely to make the difference. Though the Indo-US nuclear deal is yet to be ratified by the US Congress, this development may positively influence the immediate term sentiment for Indian equities.

But this may be short-lived. The range may be broadened in the short-term, but the range-bound movement will remain. The progress in the nuclear deal from may not singularly change in the investment matrix. The sellers may not turn buyers overnight.

According to market intelligence, though India appears relatively more promising than any other emerging markets, particularly commodity driven ones, as slowly major concerns dissipate, overseas fund inflow is unlikely to rise dramatically in the short-term. But selling may drop.

Local investors, however, seemed to have gained greater confidence and may attempt at pushing up the indices cautiously.

No hasty calls

Long-term investors are not hasty in taking fresh calls and are waiting for clearer signals. Even as inflation and global crude oil prices have been showing signs of coming down, in real terms there have not been significant changes. Two things – greenback’s appreciation against rupee in recent weeks and the lag effect in having weekly inflation numbers – may have caused the difference.

For example, crude oil at $106 a barrel in real term now means $118 a barrel owing to appreciation of over 11 per cent appreciation in US Dollar vis-À-vis rupee in the past four months.

Nevertheless, this weekend may bring cheer from the WPI-based inflation front if the widely anticipated sub-12 per cent number materialises. But, market is awaiting the lending rate to come down as a confirmatory signal for the medium term picture, which seems to be changing already.

If commodities and crude oil prices begin to slide further and the US and the European economy throws up more negative signals, things may turn positive for the Indian equities. The corporate performance in the June-September is already factored in. Quite a few market regulars are enthused by indications of things turning for the better in the third quarter.

This week, Nifty may correct immediately after exit of Dr Reddy’s and inclusion of Reliance Power (about three times larger in market capitalisation and three times smaller in profitability than the former).

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