The Hindu Business Line : Profit taking may check benchmarks

As has been mentioned in this column last week, equities saw some consolidation with the BSE Sensex hovering around the 14K mark and the NSE's S&P CNX Nifty around the 4,100-mark.

Corporates' financial performance for the December quarter has so far been by-and-large in line with market expectations and thus re-imposing investors' confidence in them.

On the back of this, the BSE Sensex gained 0.9 per cent at 14,182.71 last week and the NSE's S&P CNX Nifty 0.93 per cent.

FIIs dilemma

Despite a strong show by the Indian benchmarks, foreign institutional investors' investments have slowed down considerably though they were net buyers during last week.

However, according to latest SEBI data, they were still net sellers to the tune of about Rs 500 crore in January.

With the BSE Sensex P/E ratio ruling close to 23, most of the FIIs feel that India is slightly overstretched. In fact, Business Line carried a few reports last week, including from Franklin Templeton, Blackstone Group and Ashburton, all raising concern over Indian stocks' valuations.

Ratings agency Moody's Investors Services said last week the economy was showing signs of overheating and capacity constraints could prevent annual growth of 9 per cent from being sustained.

Besides, according to Emerging Portfolio Fund Research, emerging markets equity funds posted outflows for the first time this year during the third week of January on Venezuela's nationalisation plans and on concerns about a slower Chinese economy. Asia equity funds, excluding Japan, had net sales of $38.5 million while China funds saw outflows of $3.37 billion, according to EPFR data.

Inflation vs easy money

With inflation rate raising to a two-year high of 6.12 per cent at the start of 2007 - fuelling expectations of an interest rate increase when the Reserve Bank of India reviews monetary policy on January 31 - there is increased worry among market participants that the days of easy money are over. The Wholesale Price Index rose 6.12 per cent in the 12 months to January 6, higher than the previous week's annual rise of 5.58 per cent due to costlier food and energy, according to Government data.

Many bankers feel that the RBI will raise both the repo and reverse repo rates by 25 basis points. Despite the RBI's intention to keep inflation at 5-5.5 per cent at the end of the current fiscal, market participants expect that it is likely to remain above that for the next few weeks and could even climb to 6.5 per cent.

Already CPI-M, which supports the Government from outside, has sought a ban on futures trade and reduction in fuel prices to curb inflation. With elections round the corner in crucial States, the Government is hard-pressed to take some key decisions.

Profit booking?

On the back of these developments, markets may see some profit taking this week. Easing of crude oil prices, which fell below $50 a barrel during trading some time last week, was, however, providing some underlying support.

Market is set to witness stock-specific action with some bigwig companies slated to announce their third quarter financial performance. Among them are Bharat Forge, Dr Reddy's Laboratories, Maruti Udyog, Cipla, Tata Motors, Grasim Industries, HDFC, Tata Motors and Bharat Heavy Electricals.

Besides, settlement of F&O contracts this week will also add volatility to the market.

However, with the Union Budget a month away, the broader trend for the market may be sideway movements.

More Stories on : Stock Markets | Outlook | A Ringside View

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Manmohan to discuss pension investments with CMs today

TRAI to review access deficit charges again

AI plans to rope in bigwigs as model travellers

To book profits or to continue? - Funds' conundrum

Central Asian countries woo Indian textile cos

Tata Motors flags off work at Singur small car plant

IBM headcount crosses 50,000

Retaining talent, the TCS way

Copper prices seen dormant in first half

Govt mulls ban on export of skimmed milk powder

Floating home loan rates breach 10 pc

Profit taking may check benchmarks