The Hindu Business Line : Further downslide likely

WORST fears have been proved right. The domestic stock market slipped last week and a further fall this week is well on the cards. The benchmark Sensex dropped by 257 points from the previous week's closing score of 6,700. The overall market's advance-decline ratio turned distinctly negative.

Short-term gloom: Amid mopping up of money from the emerging markets by overseas funds, FIIs pumped in a net investment of just Rs 6.10 crore to India last week. Domestic mutual funds picked up stocks worth around Rs 400 crore in the first three days of the week, but could not improve the sentiment.

The US stocks fell for the third straight week and the Morgan Stanley Capital International Asia Pacific Index recorded the sharpest drop in almost three months. Dedicated funds for Asia and emerging markets have decidedly halted their flow to watch the impact of higher interest rate regime in the US and doubts about sustainability of commodity prices.

Near home, the Karachi Stock 100 Index crashed 16 per cent from its record high in the previous week.

The commodities and financial markets all over the world seem to be trying to come to grips with the changing interest rate scenario and trends in Chinese demand for commodities. Crude oil and metal prices were on the decline, while the US dollar rose against most other important currencies, causing a ripple effect on the stocks.

The commodities stocks including those in India were under pressure whereas property stocks on the Hong Kong Stock exchange fell over concern that higher rates in the US would push lending costs up because the local currency is pegged to the US dollar.

On Dalal Street, the effect was more on the liquidity and on the sentiment than on fundamentals. In the process, the market making activity would take a sabbatical for the time being.

In this situation investors would like to wait for further confirmation from corporates to attract premiums. In case of stocks in key indices basket, drop in trading volume is also likely.

For the well-researched medium-cap stocks, a profit-taking trend has already set in. But for the vast number stocks, which fall in the category under-researched counters, momentum play has been replaced by serious search for exit.

The penny stocks, which were progressing smoothly until a couple of weeks ago, have begun to give trouble to the operators.

Small change: The retail investors who had nibbled at some such duds with lack of credentials or numbers, were quick to retrace their steps. Various sets of operators, who have been promoting stocks worth less than their face value on strength of inspired rumours, are likely to lie low during the corrective phase.

With a reminder of the fourth anniversary of one of the biggest frauds on the domestic capital markets this month, market appears to move with caution.

This week the market may see a short bounce-back, but on the whole it looks poised for a drift-down.

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