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JAYANTA MALLICK

Recovery trail is likely to be marked by intra-day swings

The downward slide finally came to a sudden halt last week on Friday. High opportunity cost forced investors and punters to drop all pretence as postulated in these columns last Monday.

But, how did Dalal Street's search for an intermediate bottom end on Thursday? Is it mysterious that the benchmark recorded the highest ever gain in terms of absolute numbers on Friday to make an emphatic statement?

Was it a tactical initiative by a few that dominated the confused market for a day? Or, is it a strategic move - pre-meditated, calculated and, to an extent, coordinated - by the market makers that worked wonders? Or, was it a plain vanilla coincidence?

Trading instinct

According to NSE-collated provisional data, FIIs made a net investment of just Rs 381.22 crore on last Friday, much lower than the figure, which can be construed as a directional call.

Market intelligence further suggests that the local mutual funds continued with their selling strategy on Friday too. So, it is evident that everybody else may have turned strong buyers to pull off a bounce-back in the blue-chip, mid and small-cap stocks. In a market, currently dominated by short-term psychology, sellers disappeared in an instant when some delivery-based buying begun simply because they lacked conviction. Buyers were also driven more by tactical compulsion rather than long-term strategic initiative.

Increase in the intra-day volatility in the recent past was, of course, pointing towards overall psychological make-up of the players. But the last week's experience indicated that even a day's secular upward move could also emerge when pure trading instinct is at play.

Traffic signals

The change in trading pattern suggested a beginning of an upward technical correction, but not a return of conviction. The Friday's bullishness was manifested in a significant and broad recovery; the Sensex, Nifty, BSE Mid-cap and Small-cap indices all posted gains between 4.5 per cent and 5.5 per cent. The market breadth turned positive with 1,588 stocks advancing against 820 declining and 37 remaining unchanged. However, the turnover on the NSE and BSE was lower at Rs 7,101 crore and Rs 3,429 crore respectively than Rs 8,333 crore and Rs 3,682 crore respectively on Thursday.

Re-distributive justice

At the end of a month-long redistribution in the downward corrective phase, weaker hands largely have moved over to the sidelines. If a further correction from these levels occurs, it would be dictated by the market makers.

This would also mean risk appetite for the declared "long-term" players has been reduced substantially.

The impression one gets talking to several managers of the overseas funds circles is that of a "renewal" of interest. A slew of foreign funds are likely to go "overweight" on India again shortly.

Incidentally, a host of global investors and hedge fund managers are meeting in Geneva on June 13 to discuss India re-entry strategies in the changed scenario.

Unlike traditional mutual funds, hedge funds move in and out of markets in anticipation of changes as also market imperfections to take advantage of the short-to medium-term opportunities.

Domestic funds also appeared to have weathered the redemption pressure.

Long & Short

This week Dalal Street indices may try to move upwards as players of all hues gradually warm up to the "value opportunities".

But, the recovery trail is likely to be marked by intra-day and inter-day volatility. In the next one month or so, the benchmark is likely to move within narrower band than that in May.

The lessons of May, however, may help the domestic players and the regulators in taming speculative exuberance in future.

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