Liquidity inflow from foreign investors may change the market mood this week. Mr Gul Tekchandani, independent market strategist, told this writer from London on Sunday that the weekly outlook should remain steady; key indices could reflect an upward bias. “The Budget rally is round the corner,” he says.

Money flow from some of the long overseas players to Dalal Street is showing signs of coming back, says Mr Arindam Ghosh, CEO of Mirae Asset Management. He was in Singapore last week.

According to several fund managers, who last week had interacted with foreign investors in London, Singapore or in New York, a number of players are beginning to return to Indian equities.

According to them there are two triggers — the current valuations (after the recent correction) in relation to the forward earnings prospects, and money available as an after-effect of the continuing quantitative easing (QE2).

The key assumption, of course, is that inflation in India will now recede gradually.

Officially announced food prices have fallen sharply for two consecutive weeks. FIIs, who are re-rating or considering revision in their outlook for Indian equities, have factored in the inflation-adjusted returns and seemed to have found the current levels in the key indices “attractive”, market intelligence suggests.

However, Deutche Bank says that the Union Government would ultimately be compelled to raise diesel (5-6 per cent) and fuel prices (10 per cent) to reduce fuel subsidies, thereby pushing up the fuel inflation rate.

According to some investment advisors, a section of investors may not withdraw even if the softening of the trend in declared inflation numbers for certain crucial items turns out to be a moderation for a brief period.

This is because these investors have zeroed in on the current levels for the strategic long-term investment window, the argument runs.

But Mr Saurabh Mukherjea, head of Equities at Ambit Capital, who handles a large number of foreign investor clients, feels otherwise. “The market has not bottomed out. It is a temporary blip that has kept the benchmark over 18,000. The Budget expectations-led upward movement may not last. The forthcoming Budget announcements are unlikely to keep the momentum going. The Q4 results may, however, change the course of the market. Before that happens the Sensex may see its bottom at around 16,000 points,” he predicts.

Mr Janardhan Kothari, an independent technical analyst, says the study of 390-day exponential moving average suggested that the Nifty would take support at 5300 level (which it did), rally to 5700-5750 He says the index will start declining to re-test the recent bottom after Budget. “The Nifty may show lower short-term bottom.”

>jayanta_mallick@thehindu.co.in

Related Topics
comment COMMENT NOW