If the winter session of Parliament can raise hopes, valuations could go up further avoiding any serious correction.

Jayanta Mallick

FOR most people who frequent Dalal Street, the swings in market sentiment may seem a trifle strange to ride along. Even the knowing visitors could be baffled by the least expected change in the mood. When October beckoned investors back to the basics, November unravelled a flight of fantasy.

This is market magic. Some call it black magic, when it hurts. Luckily for the stock markets everywhere, this intrigues more than it repulses.

After a strong correction, the domestic stock market almost recovered the lost ground in the last three straight weeks without a pause for consolidation and held out hopes for new heights.

Even though the overseas funds did not make net investments of over Rs 150 crore in a single day and domestic mutual funds pumped in less than that figure, the market steadily buoyed up last week.

One could argue that in the last few weeks, global liquidity has improved and the US market has moved up, or crude prices have slid, while India's macro economic picture remains quite rosy and reforms and divestment has returned to public polemics.

Among the global investing community, the emerging markets are back in favour.

Valuations of the benchmark indices and frontline stocks, which were being questioned last month, have regained respectability, thanks to local market makers.

Through rotations amongst various sectors, the market operators have nursed the values up. The hotel, cement, IT, oil, sugar, logistics and media stocks are about to witness a second bout of upward move in the recovery trail. There are laggards still.

Steel and four-wheeler stocks, for example, have not participated significantly as yet. This week, it could be their turn.

For further reforms and divestment, the market expectation is near zero. If the winter session of Parliament can raise hopes, valuations could go up further avoiding any serious correction.

In the international markets, the Nasdaq Composite is on a 53-month high. The S&P 500 is on a four and a half year peak. The Dow is roughly within 10 per cent range of its all time high.

A sudden rush of money to the emerging markets and also Indian equities cannot be ruled out because funds are attracting fresh investments again. This would not only improve the sentiment further, but raise the liquidity level also.

In the local market, the recovery has not been restricted to heavyweight stocks so far. The mid and small stocks have also come off their recent lows. Last week, the volume and market breadth were also decent.

But, a quick and short correction arrives when everything looks fine. That is how the market is.

(This article was published in the Business Line print edition dated November 21, 2005)
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