Sensex may move sideways

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Value buying at lower level may check any serious slide

WORRIED DEALER looking at the monitor, as BSE Sensex closed 172 points down on Friday. - Paul Noronha
WORRIED DEALER looking at the monitor, as BSE Sensex closed 172 points down on Friday. - Paul Noronha


To the satisfaction of those, who feel apologetic about the Indian stock market soaring, and to the dismay of those, who expect Dalal Street movement to be one-way, the Sensex and the Nifty did test a correction on Friday. The profit taking in the benchmark stocks had an impact on the momentum and may continue to do so this week too forcing the top indices adopting a sideways course.

But the overall money flow may not turn negative as a virtuous cycle of developments is working in favour of Indian equities now. There may be a reversal of positions this week among different sections of investors. The section that has missed the recent upside, may attempt to enter at lower levels, while the others, who have ridden the bull, may translate their paper profits into real ones.

As a result, even a sharp intraday correction is unlikely to trigger a serious fall. Buying is likely to emerge to stem any psychological rot.

The US Presidents' official stamp on the N-deal this week may cause some to book profit. A number of overseas funds have been building their portfolio with a predetermined timing such as this.

The CRR hike announced by RBI is likely to negatively impact rupee against dollar this week. But this may in turn prove to be positive for the IT stocks in the short-term. Infrastructure and real estate related stock are also likely to remain firm on fresh flows.

The signals from the policymakers suggest that an inclusive growth plan is likely to be kept at the centre stage in the socio-economic discourse, largely to keep the growing perception of internal tensions over the developmental route at bay.

In the emerging world order, all seem to acknowledge that growth in the stock market indices is no less important than the growth in the GDP and other accepted indicators.

World of MSCI

Morgan Stanley Capital International World Index movement testifies that except for a mid-year hiccup, global stock markets overall had a good run this year, fourth in a row. However, the MSCI Eurozone Index' performance in 2006 surpassed that of the MSCI Emerging Markets to steal the top slot.

Incidentally, the MSCI index for Europe (ex-UK) has improved its ranking in the last two years. The MSCI Emerging Markets Index has remained steadfastly at the second spot for the past three years. The Japanese index (Tokyo SE First Section), which had performed best in 2005, turned out to be the worst in 2006 so far.

This prompted some global fund managers to pitch for the European stocks in 2007 as against the emerging markets, particularly BRIC equities.

Interestingly, the trends in last three years among the MSCI universe reveal that all other indices have followed the same footprint of the MSCI World - declining in 2006 after showing significant upside in 2005 against 2004.

Since late 2002, the emerging market equities began their current run. From that time onwards, emerging markets have clearly outpaced the G7 world in terms of growth.

BRIC by brick

Take the poster boys of the emerging markets India, Brazil, Russia and China. From its lows in 2002 to its highs earlier this year, the Sensex gained 350 per cent (mid-May), compared to about 70 per cent growth in S&P 500. Brazil's Bovespa has grown by over 400 per cent and the Russian benchmark index moved up more than 500 per cent during the same period. The Chinese stock market, however, has been a drag for the emerging markets and moved up by only around 25 per cent during the timeframe.

Though widely referred to in the international investment circuits for their anecdotal value, the quantum of money flow in the recent past did not necessarily follow the growth trends reflected in the MSCI indices.

(This article was published in the Business Line print edition dated December 11, 2006)
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