The Hindu Business Line : Momentum to continue

Often the stock markets behave in a strange inverse way. Disappointing economic news even causes a rally. For instance, share prices at the last weekend leapt on Wall Street when latest jobs report fell short of forecasts, sparking renewed hope that the US Federal Reserves will pause after its next interest rate hike.

Different stroke

Last week, Dalal Street's response to apparent negatives, somewhat matched this inverse logic. The developments related to the IPO scam could not at all influence the sentiment. The benchmark and other indices surged ahead on increased money flow. Return of overseas players, as predicted in these columns, was reflected in a decent net investment figure. Local mutual funds also were net buyers. Other group of investors also did not stay back on the sidelines.

This week, the BSE Sensex and the Nifty are likely to continue to move upwards on a buoyant mid-to-long term economic outlook, short-term fall in crude oil price and a possibility of a muted hike in retail petroleum product prices.

The real stars, however, could be the small and the mid-cap stocks. The institutional and retail investors are queuing up for these equities as a large majority of them are perceived to be dramatically transforming their profile. It would not be surprising if the BSE Mid Cap and Small Cap indices outperform the bellwether index in the short-term.

The appetite for cement stocks may continue and the textiles counters, particularly the spinning units, are likely to attract investors.

As country's infrastructure spend is increasing, the cascading effect on the balance sheets of a whole range companies are becoming more and more visible. Though, concerns have been expressed, by some global investment firms and multilateral financing institutions, about the country's ability to absorb oil shock, so far the liquidity - driven the domestic stock remained unaffected.

Global investor community is gradually veering round the idea that India's growth momentum could actually accelerate despite external negatives and internal inadequacies. The signals from investment banking and private equity circles suggest that apart growing portfolio money, India could witness a quantum leap in overseas investments in the country this fiscal.

Long and short

Last week, crude oil prices went down because of a surprising lift in stockpiles. But with international tensions still simmering over Iran's nuclear programme, prices in the immediate terms may not register a continued fall.

Even if the global crude oil prices again steadily pushes beyond $70 mark, Dalal Street may have enough cushion in the short-term to ignore it.

In fact, the local stock market is gradually approaching a stage, where, in the long-term return context, it might be uniquely placed as an "emerged market". A set of commercial economists already have begun to air their belief that the Indian equities, as an asset class, should neither be equated with those in other top emerging markets, nor with the developed ones.

The likes of Nomura or JP Morgan give an impression that if Indian equities prove to be a class by itself within next couple of years, the overseas liquidity flow could skyrocket to an unimaginable level. Incidentally, India's own investments are scaling new high around 32 per cent of its GDP.

As a result of this perceptional changes, the domestic market is learning slowly to brush the concerns - including ones over the spiralling Sensex - under the carpet, at least as long as the show is on.

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Momentum to continue