The Hindu Business Line : Focus shifting to mid-cap stocks again

The market will remain sensitive to any negative event, and on the other hand, may not show exuberance over any positive development. A trend of delayed reaction to positives surfaces in a stock market when price action determines its logic and not the other way round.

THE benchmark index BSE Sensex seems to have set a short-term range between 5,743 and 5,920 points. The market's focus appears to be more on the small- and mid-capitalised stocks rather than index heavyweights.

The price and volume actions for the last few weeks suggest that domestic investors were more comfortable searching for and banking on new themes. The domestic fund, on the contrary, increased purchases. But since they do not wield power to influence market direction, the key indices did not have much impact.

Last week, the foreign institutional investors took a breather. On Friday, they sold more than they purchased (net negative investment of Rs 185.90 crore) and on Tuesday made net positive investment of just Rs 3.5 crore. On other days their net investments were lower than that in the previous week.

Majority of foreign fund managers and chief investment officers this writer talked to insisted that they remain bullish on India, though only after China.

But, why then the key indices appear weak? Why extraordinary results from Infosys and Wipro failed to fire up the market? Or why the most important seasonal forecast for the year — a favourable and timely south-west monsoon — could not bring a fresh feel-good air for Dalal Street?

Apparently, an element of willing suspension of belief in shining economic numbers is at play in the market as elections approach. So far in the run-up to the polls, except for a few negatives, the campaigning had not thrown up any major sentiment influencing development. The hype over the "India shining" act is on a low key now (the Prime Minister went on record to admit that there were patches of darkness, which required focused attention).

Though the perception of the overseas investors have not undergone any major change of late, they are likely to stop short of making a resounding call on Indian equities before the ensuing general elections.

The apparent discomfiture do not stem from those set of economic numbers, which are uncomfortable. The level of credibility of the political elite, who will run the economy, in any event, seems of the cause of worry for the foreign investors.

This week, the market is likely to continue to tread a cautious line in terms of volumes and prices in heavyweights in the key indices. The trend of "discovering" under-valued small stocks is likely to persist. The market will remain sensitive to any negative event, and on the other hand, may not show exuberance over any positive development. A trend of delayed reaction to positives surfaces in a stock market when price action determines its logic and not the other way round.

Interestingly, history suggests that a market to do not react in the same way to similar events or developments in different points in time.

According to the technical charts, the key indices do not indicate a breakout in the immediate-term. Sectorally speaking, the shipping, power and fertiliaer stocks may show more activity.

The result season being almost over, there could hardly be any sentiment-influencing trigger from that front this week.

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