Jayanta Mallick

RAFTS of the benchmark indices barely escaped out of the jungles infested with bears, albeit a journey through class V rapids, but market is not out of the woods yet.

Amid FII outflow from the emerging markets and restraint for Indian equities, the domestic market players had to stick their neck out to prop up the market last week. Menacingly hot crude oil and metal market outlook, as also rising interest regime, may not turn the overseas investors bulls on Indian equities overnight.

If the FIIs chose to wait for a while, the domestic bulls will have to carry a greater load on their shoulder to keep the market flag flying.

The market makers, operators and big institutional players are looking forward to commencement of the results season from the middle of this month. Indications are that fourth quarter results would be better than the third, but market is yet to spell out any aggressive profit growth expectation. Having factored in the continuation of growth rate averages, recorded in the first nine months, the market has now to put fresh price-earning multiples considering a change in overall sentiment.

Though there are compulsions for the current frontrunners to keep the valuations afloat, after losing the liquidity-led momentum, risks have become considerably higher for market making effort. Demand is no more a function of price; on the contrary higher price brings in more supplies. If the idea of strong growth prospects cannot be sold adequately to the investors, good corporate results may result in another bout of profit taking.

The growth pace in the manufacturing sector has been gathering momentum through the whole of 2004-05, despite relatively poor monsoon. Infrastructure sector and export-based industries have done exceedingly well. The market had taken cognisance of it from time to time.

It is fortunate that the IT sector results pour in first with forward profit guidance setting the tone of market valuation at the end of each quarter. However, this time around, creation of fresh demand would require additional effort and funds to maintain a general "hold" on IT stocks.

The likely strategy for the next couple weeks is one of holding the Sensex and Nifty pricelines. Drumming up expectation before the results is not among the favoured options as an undercurrent of nervousness runs strong. However, a fall in IT stocks may be resisted as far as possible.

Among the heavyweights, moderate speculative activity in RIL and ITC is on the cards. In the mid-cap space, efforts at further recovery are far easier to succeed as every one, including retail participants, are keen on that.

If the FIIs start again nibbling at their favourites, overall market sentiment is likely to remain at an even keel. Even if potential negatives are brushed aside for a short term in a range-bound market, it could be considered a valiant effort in turning the tide.

(This article was published in the Business Line print edition dated April 4, 2005)
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