Jayanta Mallick

IF wishes were horses, then the Sensex would have crossed 10,000 points mark last week. Even though FIIs pumped in over Rs 800 crore in the net, the benchmark indices slid on substantial profit booking by domestic investors.

In January, overseas funds made a net investment of Rs 3,677.60 crore or $805.10 million. But the local mutual funds pumped Rs 1,172.29 crore out of the system.

A large number of deep pocket domestic players on the Dalal Street are pursuing the passive investment strategy of following the benchmark currently. Going by the money flow trend, it seems that the big investors are gearing up for the pre-Budget value appreciation phase.

Waiting for corrections:

The FIIs, which have collected billions of dollars overseas for Indian equities, are marking their time for fresh investment calls. Though not in a hurry, the fund managers are likely to use corrections as opportunities for fresh injection of money in February.

The local funds are also flush with investable cash. In the last four months they had more or less attempted to play the contrarian role in the market vis-a-vis FIIs.

In December and January they did book substantial profits on the purchases made in October and November. But it appears that in February they may be stepping up buying.

This week, the benchmark indices are likely to remain in the steady-to-positive mode. The anticipation in the air is that the liquidity would chase blue chips this week lending a positive bias to the overall mood. However, the market does not necessarily tread the anticipated path.

The blowing over the Iran crisis for the time being had its salubrious effect on the global crude oil and stock markets. The signals from the US and the Japanese economies are working in favour of emerging markets including India.

The Japan-dedicated global equity funds witnessed net outflows for the first time since last July in the third week of January as volatility on the Japanese markets gave investors serious jitters. The US equity funds also has begun to face redemption pressure towards the end of January.

In the fluid scenario, the Dalal Street benchmark is likely to scale a new peak in February around the 10,300 points level. The sustainability of this level would be tested from March onwards depending on the economic growth impetus the Manmohan Singh Government can dish out in the Budget and the steps it takes towards further liberalisation.

(This article was published in the Business Line print edition dated February 6, 2006)
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