The Hindu Business Line : Looking for buying support

DESPITE attempts by a few bulls still in the ring, the domestic stock market is unable to shed the weakness. The chart-followers are seriously trying to figure out where the current market's bottom lies. Some of them have aggressively brought down their estimated support level on the benchmark Sensex at around 5,800 points.

The present bearish trend is continuing by default, or in other words, lack of significant buying and not because of widespread heavy selling. Last week, FIIs were seen stepping up their net outflow. Though overseas funds are not exiting stocks in a big way, the net buying by the domestic funds is still far short of the net selling by the FIIs.

A section of local investors is also consciously staying away from the market. Consequently, far less liquidity is shortening the investment horizon and shrinking the growth premiums.

The fundamentals that had affected pricing last week were spurt in global crude prices and receding chances of immediate price rise by the domestic oil companies, the strong signal that interest rates have bottomed out and an uncertain outlook for the global steel demand and prices.

This week's opening may be good on a sharp fall in global crude price during the weekend. But apparently this is no insurance that the sentiment would sustain for long. An announcement regarding petro-product price hike may be good for the domestic marketing companies, but is likely to have an adverse impact on the stock prices of many a user industry.

The market expects Tata Steel or SAIL to report strong results, much of which had already been factored in. But the apprehension is that the expected product price hike may have to be postponed. This may be a positive for the auto and auto ancillary stocks, but in the absence of a competitive price discovery exercise in the market, it may be overlooked.

On balance, the market response to positive developments may be muted, while a mildly negative one may fetch a disproportionate reaction. The slide in bank stock prices last week explains last this phenomenon. The 25 basis point rise in reverse repo rate, a purely short-term element in the overall borrowing market, brought down the BSE Bankex by 2.89 per cent.

The corporate results so far have more or less up to the Street expectations, except for a few. But none of the corporate reports provided the market a clue for a decisive turn in the trend.

The drifting market also is ignoring the long-term positive outline emerging form the economic and the political fronts. The possibility of a berth on the UN Security Council or a greater share of oil equity abroad with China has not had any impact on the market sentiment. Neither has the chances of enhanced Japanese fund flow into the domestic equity enthused Dalal Street.

It appears that as long as the liquidity flow does not turn significantly positive on the ground, the market may not buy growth ideas, let alone wishy-washy projections and promises.

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