The Hindu Business Line : Dalal Street may see consolidation at current levels

April gave some relief to the equity street. The results, so far, have brought home an average PAT growth of 28 per cent for FY-2008 and an aggregate 17 per cent in the most troubled fourth quarter.

Last week, the indices improved according to the prognosis spelt out in theses columns. The market may now enter a phase of consolidation and sideways movement in the short-term.

However, there is hardly any lack of consensus that the way forward for the economy and the equity market in the next few quarters may be rocky. The forward growth estimates vary depending on where on the perception spectrum one stands.

Growth concerns

While authorities are preoccupied with encountering a formidable challenge – the impossible trinity of finance – trying to reconcile capital freedom, exchange rate maintenance and independence of monetary policy – market analysts are attempting to price in possible hiccups on the costs and margin growth front.

If one foresees a cyclical slowdown in the economy, time becomes the essence of the analytical paradigm. Would the downturn be short and shallow spread across a couple of quarters? Opinions seem to put out a divergent picture; some project a period of downturn as short as two to three quarters, while certain others apprehend a fairly long tenure of six quarters.

If there is a deceleration in manufacturing, tardy improvement in agriculture and stagnation in the service sector, both corporate profit growth and the GDP growth would be affected.

According to market intelligence, if the aggregate profit growth were maintained at around 20 per cent, then the GDP growth rate of 8 per cent would be easy to reach at the end of this fiscal. Even as the pronounced GDP growth projections dangle between Mr P. Chidambaram’s optimistic 9 per cent and investment banker Morgan Stanley’s 7 per cent for this financial year, each individual player seems to go by his or her own growth number and key to the investment strategy.

Opportunity?

After a decent recovery, some bull strategists play down the looming uncertainties as an opportunity for the long run. Return of a mild aggressiveness in the form of upward revisions of price targets suggests risk perception is, perhaps, undergoing a change, at least on paper. But tentativeness is palpable on the trading floor.

In the primary market, the proposed issues, which were shelved in the previous quarter, are back in rehearsal mode for a road show in the third quarter. In would be curious to know whether pricing would indicate aggressiveness of the past or be in line with reasonableness of the present.

Market drama occasionally draws parallel with Shakespearean tragedies – trouble in the beginning and rows of death in the end. But, only a discerning player in the market theatre can understand the change of scene in an unending act and decide the entry and exit. That’s why market hates uncertain scripts.

(Responses may be sent to jayanta-mallick@thehindu.co.in)