The Hindu Business Line : This 2-day week may set the short-term direction

DALAL Street benchmarks are perilously close to bear zone at the end of the trading year. This week's two sessions are important for sentiment reading. A token support at the current levels of the Sensex and the Nifty, is likely. However, this would not be enough to gauge the short-term direction of the market.

But the fresh inflow on account of the Vodaphone buying stake in Bharati Tele is likely to turn the net FII investment positive this week. This should be good for the market psychology. The net outflow by the overseas investors had grown steadily last week to reach a peak of Rs 755.10 crore on Thursday.

The sustained outflow from portfolio investments in the last three weeks had put additional pressure on the weakening rupee against dollar.

It is expected that this week, dotted by market holidays, will bring in a welcome relief.

Sentiment played a bigger role than the fundamentals in the recent correction.

The market had earlier moved up too fast and too soon, ahead of fundamentals and the growth expectation had soared to unreasonable heights on sheer liquidity.

The second quarter net profit growth in the frontline stocks eventually had fallen below market expectation by around five to seven per cent on an average.

As the relative overvaluation perception gained ground among the FIIs, some profit taking became an easy option.

The surging dollar (against all major currencies) and apprehension of more than 25 basis points US interest rate hike, also influenced the overseas fund managers to reduce fresh commitment temporarily in Indian equities along with many other emerging markets.

An end to the partial withdrawal phase now appears in sight.

The strong US GDP growth numbers in the third quarter, released on the weekend, may have led the global market players to think that on November 1, the US Federal Reserves would stick to 25 basis points rate hike.

If this comes true, then the global financial market is likely to turn the tide, at least for now. Lower valuations in the local and emerging markets are likely to attract fresh inflows.

Confirmation of this trend would only be available from the week beginning November 7. A lot of domestic liquidity is waiting on the sidelines for this positive clue. This time perhaps the bounce-back would first come in the frontline stocks and benchmark indices. The mid- and small-cap stocks would take some more time to get out of the corrective phase.

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