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Will the banks provide the lifeline?

Jayanta Mallick

THE rules of the game have changed. But no player, including foreign institutional investors (FIIs) and mutual funds (MFs), seems to be sure of the impact of the new norms on the secondary capital market in the immediate term.

Mr Dipankar Basu, Chairman of SUN F&C Mutual Fund, says that his fund did not find an options writer for a put options contract worth Rs 50 crore. ``Maybe syndication of options writers will soon be the order of the day to handle handsome volumes.''

He also feels that the fund-starved stock market needs institutional funds. He hopes the Reserve Bank of India may ``ease'' the norms soon for financing market intermediaries by banks as the Securities and Exchange Board of India (SEBI) has made the mark et safer by putting in place a better risk management system and introduction of rolling settlement.

In the absence of badla financing and the deferral products such as ALBM and BLESS, brokers are of the opinion that the market may see a sharp drop in volume. According to Mr Ajit Day of Dayco Securities, ``lower volume and higher volatility is the likel y scenario this week''.

Apprehensions are also being expressed that soon the market may look for financing routes, which are not altogether legal.

The rolling settlement segment is likely to squeeze out opportunities for arbitration. The speculation and even day-trading may be very low-key, according to Mr Vivek Mahajan, an analyst.

As known operators are in a state of disarry, the market may be driven mainly by FIIs. ``If FIIs turn sellers, it is likely to be difficult to find counter parties to buy at their volumes. As a result, prices may crash in any of the 31 scrips which have circuit breakers,'' Mr Day apprehends.

According to Mr Mahajan, as possibilities of manipulation of indices -- the Sensex and Nifty -- have not been guaranteed against in the existing system, index-based futures may remain untouchables for investors.

In the opinion of a large section of brokers, the change over is ill-timed and so far ill-managed. The market has been hit by poor liquidity, bad corporate fundamentals and the economy is not showing much of a glitter.

On the whole, the market may suffer from lack of direction this week. ``Technically speaking, the market is still in a rally mode. Last week, it witnessed a reversal on weekly basis. The advances clearly overweighed the declines,'' observes Mr Mahajan.

According to charts, from the last week's Sensex closing of 3,456.78, the nearest resistance in sight is at 3,550 followed by another at 3,650. A strong support is likely at around 3,300. ``However, the premise may go awry if trading volume plays truant, '' Mr Mahajan added.

Scripwise, select old economy ones appear strong for the week. Technical analysts aver that counters of ACC, Tata Steel, Cipla, Asian Paints, Nicholas Piramal and Voltas may cheer investors.

``The Reliance Industries scrip is still in rally mode, but may exhaust soon. ITC is amid a long-term downtrend. Dr Reddy's is also showing a declining trend,'' according to Mr Mahajan.