The Hindu Business Line : Indices may fluctuate within a broader range

Weekly outlook loses much of its meaning when market is discounting the long-term positives with a jaundiced eye. Last week, the announcement of the Chinese stimulus package could cheer the Asian markets just for a day.

Tata’s take

The Tata group Chairman’s recent letter to group top executives is doing the rounds in Dalal Street circles.

Mr Ratan Tata feels many Indian companies “already are or will soon face major problems” in accessing credit. Lack of liquidity in the domestic market and depression in the stock market has been cited as reasons for the situation and Mr Tata on November 6 in his letter admitted: “one must assume that liquidity will continue to be a major problem, accompanied by a depression in consumer demand”. He apprehended that the problem was not going go off over the next 12 months and failure to manage this crisis could result in irretrievable positions.

The Equity Street did not miss the gravity of the situation and indications for things that may come. Stock market is all about business valuations. It has been trying to assess and factor in the largely un-quantifiable shift in business dynamics.

In the backdrop of substantial leverages of Indian corporates, change in business cycle is likely to have a multiplier effect on the valuations, which in turn influences dynamics of leverages.

In a globalised capital market, thin insulations do not work.

Downcast mood

Stock market is slowly waking up to realities worse than feared till recently. Market psychology in the short-term is downbeat. There are players who would like to believe that worst is over. But a shibboleth such as “market is near its bottom” hardly has meaning when the basic premises undergo radical changes.

Bailouts and relief measures may temporarily stem the rot. But the fact that the real economy and corporate fundamentals are deteriorating cannot be confronted with such short-term steps alone. Market players in their pessimism seemed to have discounted the G-20 meeting as something symbolic, not substantive.

Worrisome leverage

Market observers do not seem to be particularly optimistic about the effects of weekend liquidity relaxation measures by the RBI on the valuations in the immediate term.

These are seen as more of damage control aids than ones which could improve corporate fundamentals. On the other hand, central bank’s action is being considered as an admission that corporates are reeling under over-sized leverages.

According to market intelligence, the bull operators this week may make a desperate attempt to prop up the sentiment.

But, very few think it would have a lasting effect.

Movement of key indices may fluctuate within a broader range, with a downward bias, a consensus of opinion seems to suggest.

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

More Stories on : Stock Markets | Outlook | A Ringside View

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page