The Hindu Business Line : Crude reality may hit sentiment further

DALAL STREET is suddenly feeling the heat of a globalised economy. The local stock market last week was forced to look at global economic compulsions more seriously than ever before.

The thin insulation, provided by the UPA Government by postponing parity in prices of petroleum products, may not last long. Except for a day's mild recovery in the key indices on a negative breadth, the week saw a clear correction in equities. The speculative binge in the crude oil and the metals' markets made the domestic punters and stock investors sit up.

FIIs were net positive in their investment in equities last week, but the total figure was less than that in the previous week. In the debt segment, they were only sellers.

Crude reality: There is a growing realisation that global crude oil prices may continue to rise through the end of October because of strong demand in the northern hemisphere. The coming winter may further strain the already tight supplies position.

On top of a decline in US production owing to the recent hurricane, and maintenance of installations at Alaska, the Nigerian oil workers' agitation has aggravated the overall situation. With OPEC pumping at just about its full capacity, markets fear that the US is running out of time to build up a sufficient winter fuel inventory. US distillate stocks, including heating oil, have fallen by more that 8 per cent below last year's level. Japanese kerosene supplies remain at around 17 per cent below the year-ago level. The record oil prices are likely to trim US economic growth by at least 0.2 percentage points in the October-December quarter, according a group of economists.

The street punters, who switched on to the so-called "insulated" IT stocks to survive a corrective spell, are not sure of their gambit. The November 2 US Presidential election is not far off. The last week's call for IT stocks is, by any means, not a long one. There is hardly any doubt that Mr John Kerry will upset the outsourcing applecart if he is a winner.

The dramatic twist in the international metals' markets has further queered the speculative pitch for all classes of assets last week. The stakes of hedge funds across the globe are at a record high in the ferrous and non-ferrous metals at this point of time. A probable sharp fluctuation in London Metal Exchange prices is likely to give sleepless nights for the operators in metals stocks on the home turf.

Not a Pawar play: It's an irony that when a "feel-good factor" was setting in at home, the stock market is being forced to go on the back foot. After discounting the disinvestment blues or hiccups over free- power politics, the market had set itself on a rallying track in the last few months ignoring the rumblings in China, Iraq or the US. But now the home politics being on a stable path, global uncertainties are influencing the valuations.

This week, the Dalal Street punters are likely to opt for a more defensive stance even though the retail push is too strong to ignore.

The liquidity and the corporate results are in favour of market makers. As the economic fundamentals for the immediate term have turned somewhat hazy, profit booking could be watch word for the big players this week. So, a continuation of correction is on the cards.

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