The Hindu Business Line : Uneasiness prevails in uncertain market

Fundamentally, there is hardly any development to look forward to till the Budget. Technically, indications of immediate-term bearishness are also not difficult to read.

The corporate performances in the third quarter of the current fiscal, by and large, have been able to satisfy the Street expectations.

Now, the fresh investment trigger has to come from the economic fundamentals and corporate growth trajectory. Temporary slowdown in overseas fund flow to the Indian equities has its roots in global economic uncertainty too. Strengthening of dollar has changed investment equations. But more importantly, global investors are preparing for a change in the course of the US economy.

The country weightings for global emerging markets equity funds in 2005 seem to be undergoing a change. Whether it's a country fund or an emerging market fund, South Africa appears to be attracting greater inflow. Global funds are buying into South African equities for upward revision in growth forecast for 2005.

Global emerging market equity funds gave a record 11.5 per cent weighting to South African equities towards the end of December 2004. Flow increase can also be traced to single digit P/E markets such as Indonesia, Malaysia, Thailand, Brazil and Mexico.

Early indications this year suggest that India has become relatively less fashionable destination. Global emerging market funds have trimmed their India weighting from an all-time high of 7.5 per cent in January 2004 to 6.2 per cent by the year-end. Last year, JP Morgan Fleming Emerging markets Equity Fund and Genesis Emerging Markets Fund were among the top overseas investors, which earned excellent returns from India.

This month some of the overseas funds are seen freeing cash and a section of foreign investors are not making fresh investments.

Last week, FIIs made a net negative investment of around Rs 110 crore. This week, in view of near month contract settlement with relatively high open interest in the derivatives segment, the cash market may see greater volatility. The broader indices are also likely to shadow the benchmark and may drift with a downward bias.

Apart from low liquidity, the quality of corporate governance is also fast becoming a valuation issue in the market, thanks to the rift in Reliance brotherhood. Arguably the cheapest in the Sensex basket, the Reliance Industries stock may slip this week in investors' "faith" makes way for uneasiness.

Another benchmark basket stock, ITC is also likely turn weak as the initial euphoria about the benefits from the Supreme Court verdict on the luxury tax issue dies down.

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