The Hindu Business Line : No dramatic turnaround likely

B-DAY BLUES: Worried stockbrokers monitoring the falling BSE Sensex as it closed 540 points down - the year's biggest fall, in Mumbai on the Budget Day. - Paul Noronha

Did someone say that in the equities market time is always short, the list of tips long, opportunity fleeting, experiment treacherous and judgment difficult?

Dalal Street indices have fallen for more than a week now as investor sentiment turned bearish. A substantial amount of funds has been taken off the table. However, a normal level of outstanding position in the derivatives market suggests that expectation of a bounce-back still underlines the current market psyche.

As the technical analysts grope to identify support levels for the benchmark index, contrarian play takes a backseat.

The weekly as also the fortnightly loss on the Sensex is a clear reminder of the short-term washout in May 2006. On Budget day alone, the Sensex recorded its biggest fall (of 4.5 per cent) since May last year. There was no straightforward answer to the dip in sentiment.

Was it a fear of rising inflation or hardening of interest rate? Or the Budget proposals themselves did not live up to the market expectations? Or is it the global cues - Mr Alan Greenspan's utterances regarding "possible" recession in the US or sudden emergence of worries about Chinese growth?

Decline had begun in the previous week. It forced many on Dalal Street to wonder whether the long-awaited correction in the local stock market had finally arrived.

Emerging Portfolio Fund Research data indicated that flows into emerging markets equity slowed during the third week of February as investors waited for fresh clues about the medium-term outlook for the yen carry trade.

Year-on-year, the money flow into Global Equity Funds was running at more than 40 per cent over last year's total. Flows were noticeably broad based towards the end of February, with no one fund or country fund group standing out.

At home, foreign institutional investors last week remained net sellers on all days. They pumped out a total of Rs 3,693.50 crore (net of total buy and sell and taking into account the Friday's provisional figure, put out by the NSE) from the Indian equities. Such a large-scale sell-off came after the 12-session mop-up stretch in May 2006.

Last week's sharp decline in equities markets across the globe was accentuated by hedge funds, which promptly reduced exposures. The scale of declines was significant. If anything, the weakness underscored an overall absence of panic.

For India, the short to medium term macroeconomic outlook has not undergone any change. However, despite dip in valuation, the short-term the risk perception has not changed much.

This will deter fresh flows in the near term.

This week, Dalal Street is unlikely to turnaround dramatically mainly because investors would either prefer to remain on the sidelines or tend to withdraw money. There may be substantial reshuffle in portfolios. But it is likely to fuel volatility more than raising valuations.

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No dramatic turnaround likely