The Hindu Business Line : Shift towards pivotals may continue

THE bulls authenticated their advance towards the blue chips frontier as bears finally yielded ground. The benchmark indices were clearly hoisted onto a higher orbit last week through short-covering, ostensibly backed by some positive news flow.

Interestingly, a strong money flow into the frontline stocks has led to ebb in the flow towards mid-cap stocks. It appears that in the weeks ahead there will be a shift in punting strategy.

Broadly, till the benchmarks top out, attention towards the Nifty and the Sensex stocks is a possibility and emergence of a profit-booking bout in the mid- and small-cap counters is quite likely.

However, on the ground, the game plans may go awry. The strategic apple cart may be upset by a fresh spike in crude prices.

Will the June derivatives contracts begin with a short selling trend and end with a covering move like in May? It's too long a call for speculators at this point in time. Both the bull and the bear camps will test the waters in the first couple of days to make a tentative start for June.

The trading strategies would be tuned to the manner in which the Sensex approaches the 6,900 points level, its all-time peak. If the level, which is literally at a stone's throw, is crossed on the strength of strong liquidity in the first few sessions of this week, the market will send a confirmatory signal for bullishness in the pivotals.

But there is a question mark over a strong surge in liquidity. The domestic money was instrumental in pulling the benchmarks up in May without fresh support from overseas funds. Though India still figures among the top five emerging market destinations, FII trend of profit booking has not waned, limiting the local market's liquidity. Of course, some sponsored ADS had fetched the overseas funds attention.

The domestic mutual funds have been stepping up their buying through deployment of recently garnered funds by their new schemes. The mid-cap stocks have largely been recipients of cash from such specifically directed funds. If the market's focus shifts to benchmark indices, then chances are that they may opt for temporary profit-taking in the mid- and small-cap stocks. But on the other hand, it is also likely to pave way for re-entries at lower levels in stocks in which they see a growth play.

If this trend sets in, then the retail investors will also be influenced to re-look at their portfolios and preferences. The ensuing churning may also see FIIs, which had been eyeing select mid-cap stocks but have not made entries because of lack of sizeable quantity of papers, pick them up at lower levels with greater ease.

With the possible reshuffle in allocation, there may be subtle changes in preferences among the sectors. There seems to be a consensus around sectors such as textiles, cement, automobiles, logistics, refineries and FMCG. But, steel stocks, which did not shoot up the way many others did of late, may prove to be the dark horse on the Street in the near future.

In terms of the money in waiting, while mutual funds are still on cash, banks/financial institutions, corporates and HNIs seem poised to open the tap a bit more to grab opportunities.

In the context of money flow into the stock market, India has postponed the probability of provident fund money coming in by at least one more year and chose to stay away from the practice world over.

But, eventually perhaps, the EPF and pension funds will have to hone the skills to earn a few percentage points more from Dalal Street.

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