The Hindu Business Line : Rains may dampen sentiment

SUDDENLY the sentiment has gone downbeat. The calamity that struck Mumbai last week may provide a justifiable ground for a correction on Dalal Street.

The financial capital, which contributes 30-40 per cent of the daily traded volumes on the BSE and the NSE, may take a few days more to overcome the urban management disaster in the face of a nature's worst wrath in years.

This may happen despite continuing global chase for local papers. Going by the indication on Friday, when the benchmark indices could not hold on the huge intra-day gains and closed substantially lower, emergence of selling is quite noticeable.

For overseas funds, this week may be another opportunity for buying cheap and for the local investors, to take profits. It is unlikely that the Mumbai rains or workers' agitation at Honda manufacturing facility in Haryana would colour the global perception about country's GDP and industrial growth. But the scars may not be easy to ignore.

These micro problems on the road of market economy indicate un-addressed systemic inadequacies, which may rub much of the shine off "destination" epithet tagged to India in the global investment circles. Plain prejudice affects capital flows.

However, nobody is talking about a serious correction at a time when easy money is pouring into emerging markets and particularly to the Indian equities.

The first couple of days trading this week is likely to set the tone of the market and movements in the key indices.

The last week's investment data of FIIs and domestic mutual funds suggest that they had used the dip in sentiment in last few days to buy more. If this trend continues in the first few days of this week, then a predictable slide in the BSE Sensex and the S&P CNX Nifty could be limited.

Tactically, FIIs appear in favour of pumping in money, if not raising their daily level of over Rs 1,000 crore, and not going in shorting the Nifty in futures. Some of the individual stocks in the futures segment may, however, witness short selling, partly due to hedging and partly for their peak prices in the spot market following improved quarterly results.

The mid- and small-cap stocks, which have been going up on their individual strength, may be affected somewhat by the weakening in the broad psychology of the market as a section of traders and retail investors may like to sell or cut their exposures.

But strong positive corporate news flow is likely to neutralise much of the gravitational pull.

Two things, however, are likely this week. The volumes may be lower than the weekly average and intra-day volatility may be high in view of likely sentimental gravity and the contrarian pull.

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