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This week the equity market may appear to be in a slow motion. Absence of conviction is likely to lend a sense of uncertain drift.
It is an unusual situation when only a few would like to either buy or sell. However, the trader-driven daily movements in the key indices may give a superficial indication of activity.
According to market intelligence, last week's upward movement in the Dalal Street benchmark index was not backed by investment buying. The so-called attraction of a dip in valuation has not caused overseas players to rush in. The signals are not very encouraging for the next few weeks.
Ambit Capital analysts Mr Saurabh Mukherjea and Ms Ritika Mankar said that India is currently trading at almost 40 per cent premium to the broader emerging markets (on a forward PE basis) as opposed to the long term average of around 25 per cent (on a trailing PE basis over CY06-11). India remains expensive compared to peers despite high inflation, four consecutive quarters of weakening growth and political chaos (resulting in almost zero legislative activity in Parliament).
It is unlikely that FIIs will turn buyers until India's premium de-rates to its long term average. According to them, estimates based on this premise and an EPS forecast of Rs 1,159 suggest that the Sensex is likely to now slide towards 14, 500 (11 per cent downside).
India is the least liquid of the world's 10 largest stock markets. For overseas players this makes it difficult to build sizeable positions in the relatively better stocks without driving up prices.
The foreign clients have so far ignored their fund managers' advice for taking advantage of the recent downward correction on Dalal Street.
Market intelligence suggests that RBI's policy review and the Government's actions in the next four to five weeks are expected to provide some clue to the investors to take a call. The decline in earnings growth foretold in the current quarter, the economic indicators appear to be crucial for market direction in the short term.
>jayanta_mallick@thehindu.co.in
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