The Hindu Business Line : Range-bound movement seen on Dalal Street

Cat call: A deserted pavement outside the stock exchange in Mumbai last week. Marketmen see a low level of participation after the series of terrorists attacks in the city. – Paul Noronha

Mumbai has been freed from the grip of terror. The global cues were positive on the weekend. This should clear the gloom though many unanswered questions about country’s internal security systems, may bother investors. The change in Finance Ministry would also be positive for the market.

Dalal Street may take a range-bound path this week even if signals for further lowering of rates do not arrive. However, the overall activity may remain on a lower scale.

Aggressive buying or selling would require strong news triggers. If the central bank chooses to nudge the interest rates down, the sentiment is likely to turn positive.

The liquidity flow – both outgoing and incoming – may remain restricted. For the foreign institutional investors compulsions to take out money even at a significant loss were high in the last few months. In December situation is likely to ease as redemption pressure in the US is expected to be lower than November.

But at the same time, risk appetite may not undergo any serious change. There may be a relative lull in investment activity as the Wall Street outfits adjusts to new reality, which included change in focus, lowering return expectation, reduced leverage, in some cases new fund manager and a team, and to top it all, a new strategy.

Not enticing now

Indian equities may not produce average return more than 15 per cent in the next six to 12 months. Those who want more risk, including currency risk, adjusted return may not be a game in the near term. Increasing token legal presence of new overseas outfits may not necessarily mean inflow. However, some of them would position a strategy to take advantage of the opportunity in accordance with their timing.

Local investors, in view of lower unloading by foreign portfolio investors, may also turn selective in their stock picking. A guarded domestic cash flow may gravitate towards stocks with strong fundamentals. All these make way for a sideways consolidation in the key indices.

Apart from corporate fundamentals, policy initiatives and behaviour of the political parties in the run up to the forthcoming elections may be watched keenly by the analysts and strategists.

Change of strategy

Many of the local and global investment outfits have changed, or are in the process of revising, their strategies for the equities for 2009. According to BNP Paribas: “Market returns in 2009 are unlikely to be significant – meaning that we are back to stock picking to generate absolute return. Key themes are: 1) deepening global credit crisis and demand deceleration (avoid exporters and commodities), 2) strong central bank monetary easing (play rate sensitive), and 3) resilience of middle-income segment (play low-end consumption stories)”.

India Infoline says: “It now looks more probable than not, that stress-case earnings will become the base-case earnings scenario and reported earnings for the next 3-4 quarters will be shockingly bad.” According to its study, the aggregate profits of Nifty 50 companies for the second half of FY-09 would likely to be 19 per cent, lower than the first half.

“Markets typically bottom out once volatility wears off (at present, it is still elevated) and markets get less reactive to bad news. Nonetheless, we believe that the October 2008 bottom of 2253 for Nifty will remain a strong floor for now. The broader indices may languish for some time, but individual stocks will likely be big out-performers,” the report said.

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