The Hindu Business Line : Oil prices may set direction

IF DALAL Street's erstwhile open outcry pit had still existed, it would have struck a sombre note at the close of the first session of the "trading year" on Friday.

The Indian stock market, on the threshold of scaling 6K on the benchmark index, reflected a rare maturity, rather than a kind of brash exuberance over the crossing of a so-called psychological barrier.

Seasoned by the lessons from cheerleaders like the Harshads and Ketans, the market seems to have learnt to keep passions under wraps.

The previous excursion of the BSE Sensex into the coveted 6K territory on February 19 was fuelled by the reported appeal of the "India Shining" campaign. Through the crash of May and the crude shock of October, the market has regained its poise on a broader scale.

The most interesting part of this recovery was the mid-cap surge. The domestic investors have taken note of the improving numbers along with corporate governance, less messy economic reforms process and benefits of globalisation.

The Sensex touching the 6000-mark on a moorat day was in itself a milestone for the Dalal Street. This not a mere coincidence but signifies strength and readiness of the market to take off. The medium to long-term outlook from this point onward would, of course, depend on the emerging business dynamics and the corporate earnings.

Movements in the crude oil price and interest rates will be crucial for the economy as also for the corporate margins. It would be interesting to note how the market prices such risks. The major indices last week posted gains for the third consecutive week. The Wall Street also broke a few records.

World over, liquidity is anything but in short supply.

The overseas and domestic liquidity is unlikely to slow down in the short term. This single factor may deny the market a correction. Stock market is not always a right place to exemplify Newton's third law.

This week, if the US crude benchmark remains in sub-$48-a-barrel zone, the liquidity flow may postpone a widely expected technical correction.

The way the US refiners are pushing their capacity utilisation towards 100 per cent level in the last few weeks, it would not be surprising if the global oil futures see further unwinding of long positions this week.

Another heartening trend in the local stock market witnessed in the last three weeks was that if a section of players books profits, it has quickly been compensated by a contra-play by another section. Moreover, despite limited depth, institutional players are increasingly entering previously untouched counters. This is, in turn, is lowering volatility amid churning of portfolios.

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