Sideways movement to stay

One cannot help repeating a cliché. The given mindset of various groups of market players suggests that market this week may continue to move sideways. Nobody wants to sell and none wishes to buy. Even traders are running out of profitable ideas.

Of course, there will be the usual trapeze before expiry of the near-month derivatives contracts and its impact on the spot market. Some observers, however, say the cycle-end jigs in the derivatives would lend an upward bias to the key indices.

Of late, investors have not been amused by the short coverings. Most of them are looking forward to clues in the sky — the onset of the monsoon. The Central Statistical Organisation is not an exception. It is watchful on monsoon — perhaps, a little more than usual this year.

The current inflation trajectory, the biggest worry for the economy and the real dampener for the corporate profitability as also cause for firm interest rate outlook in the short-to-medium term, is correlated to the monsoon bounty or an absence of it.

According to market intelligence, speculators are preparing to bet on a decent monsoon. Three weeks from now indications would show if this predominantly agrarian economy will wilt this season.

Industrial activity and services sector will get a leg-up if the monsoon is good this year.

Continued acceleration in core output growth, according to Nomura, suggested that industrial activity is starting to gain momentum and that a turnaround in industrial output growth should ensue in the coming months.

Long-term investors would be drawn to the market once clarity emerges on the impact of the monsoon.

If the monsoon does not bail out the troubled economy, then the Dalal Street key indices may see a serious dip from their current levels in the next couple of months.

In the market circles, doubts and hesitations do not only centre around the monsoon, but on the policy initiatives too. The Central Government has been tentative and defensive in taking planned economic steps. Market economists say that the political compulsions have been holding the Government back in carrying on the usual and routine measures, let alone bold reforms. This is unlikely to change in a hurry, said a number of fund managers and equity strategists.

Some observers say that the Indian market may not be able to avoid another bout of big correction in three to six months. The current sideways movement, according to them, is not really a stage of consolidation, but a breather in a bear phase.

>jayanta_mallick@thehindu.co.in