The Hindu Business Line : Bullish market needs liquidity support to gain momentum

For the retail investors, it is a testing time. Temptation for holding on to the existing portfolio or making a fresh entry is quite high. A section of retail investors with trading inclination are used to practice strict "stop loss" regime. However, simple market dictum such as "buy at correction" appears difficult to follow in a fluid situation.

THANKS to overseas and local funds flow, the stock market last week managed to overcome the weakness that had crept into the system. The FIIs put in a net investment of Rs 573.70 crore and mutual funds Rs 363.50 crore over the week.

Expectations of money flow have not yet fizzled out, and are likely to influence the sentiment this week also. Talking to a number of fund managers of foreign outfits, one gets the impression that more and more new overseas investors are getting increasingly bullish about India.

If this trend continues, then December on Dalal Street may not be as cold as one apprehends.

Even though the key indices are face to face with known strong technical resistances, the market may climb the hump if there is enough liquidity.

Another interesting factor is that the FIIs have started looking at stocks beyond the 30-share Sensex or 50-share Nifty baskets more seriously than in the past. In case the FII investment gets lean in December on usual year-end considerations, the local market makers will have to fuel the forward march of the indices.

India is emerging as a global outsourcing point for not only IT and IT enabled services but also manufacturing, particularly engineering and textiles. As a robust domestic market, with a reasonably high GDP growth rate has already been priced in, this new theme of outsourcing is being taken note of by the foreign investors. But it is likely to take some more time for India to position itself as a mature source of supply.

The stock market is grappling with the emerging realities on the basis of initial signs of such a trend. The local broking firms and foreign outfits have just begun to research the sectoral possibilities. At the micro level, the updated researches will take time to reach to the vast number of listed stocks in any sector.

For example, there are over 200 listed textiles stocks. The emerging opportunity will not unfold for all of them. The integrated garment manufacturers with consistent quality and reliable infrastructure to supply in bulk are likely to be the winners.

Hence, in this transition period, at the lay investor level, confusion rather than clarity seems to be the dominant factor. The current buoyancy in mid and small cap stocks is thus driven by a mild dose of euphoria, which could be somewhat misplaced.

What could be the likely market making strategy of the local punters this week? Well, warehousing or accumulation of stocks in anticipation of future distribution is obviously on the cards.

The selection of stocks as also timing the entry and exist are learnt through praxis. After 1992 and 2001 market frauds, the retail investors seem to have learnt to use caution and greed more discretely.

As the market wakes up to a possibility the Sensex creeping up, albeit through trials, towards the magic figure of 6000 points some time next year, the dilemma that confronts a lay investor is understandable.

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