The Hindu Business Line : Dalal Street may struggle in speed-breaker zone

Suddenly valuations of the Indian stocks are being questioned. `Downgrade' reports have started popping up. Have the buyers at 6,600 points on the BSE Sensex turned sellers at 6,300? It seems so.

It is wise to accept that a few in the market have conviction and patience to remain long and even fewer have guts to play contrarians.

Nothing is wrong in that strategy or rather absence of a long-term strategy. Momentum is the name of the game.

Sensex and the city: For the retail audience, it's a new twist in the script of a `great Indian gold rush'. In a momentum play, hype matters more than the fundamentals. In the hyper global markets, be it for stock or commodities, a valuation spiral stands largely on leveraged positions and liquidity.

This week, Dalal Street may see a lull in hype and the concomitant liquidity. So, the frontline stocks may have to stagnate. Will it mean exit for some impatient birds?

Last week fall may not have hurt the momentum players much. But a hasty retreat may.

It would be interesting to see how the domestic mutual funds, which have recently floated new schemes, fare in a choppy, less liquid and uncertain market.

For the mutual funds, which do not pose to be momentum players, last week was a setback because in the last fortnight, they were just beginning to be net buyers, albeit at a higher levels. Somehow, the domestic mutual funds had hardly got their timing right.

However, it is heartening to note that less than a third of the total investing breed on Dalal Street are in the momentum play. Neither the day-traders, who thrive on surf-riding, nor the domestic operators was caught offguard in the frontline stocks last week.

However, the short-term weakness in the benchmark indices may not affect the strategies in the mid-cap space as here the fundamentals so far played a bigger role than the hype.

In the last one year, the mid- and small-cap stocks have outperformed the benchmark indices because of constant revaluation led by positive news flow. Thus, the trading strategy here is a medium-to-long-term and valuations are rooted more the reality.

Mid-cap charms: As long as the BSE Sensex or the S&P CNX Nifty remains in the downbeat mode, the mid-cap indices are likely to charm the investing fraternity a little more.

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