Direction of movement on Dalal Street early this week is likely to be southward. It may continue through the week depending on how the risk aversion and confidence would react to the swiftly changing global and local scenario.

How deep the key indices will travel hinges on two factors. If the gathering dark clouds over the North African and West Asian crude oil and gas producing regions show signs of diffusion fast enough, it would be a trigger to stem the rot. The uncertainty at home due to coalition politics needs to dissipate quickly for the market to stabilise in the short term.

The Sensex may slump to 16,000 by the end of the week, if developments continue to drift towards the danger zone. One school of thought says that things may start easing out this week itself.

Last week in these columns we expressed our apprehensions about the short-term outlook. The week, however, saw short-covering coupled with some buying by institutions staving off a declining trend after the Budget.

Most market movers are unsure if the gains of last week are sustainable this week. Market intelligence suggests that the shorts overweigh longs.

This week may begin with more shorts getting piled up, and, those who went in for long positions last week may scurry for cover if sentiments turn negative.

The unrest in West Asia and North Africa can hike oil and gas prices. A sharp increase in global crude oil prices will improve the margins of Indian refiners. However, State-owned oil companies will have to contend with a heavier subsidy that will hurt their bottom line.

The growth estimates of the country, which is considered as one of the important global growth engine, may go awry. The cascading effect of crude oil at over $100 a barrel for few more weeks could prove to be lethal to the earnings prospects of the corporate sector.

Market players have been “factoring in” the domestic signals over the allegations of corruption and political manoeuvrings around these allegations. But the recent political developments have caused fears of political instability.

Will any shocking directional indicator for the equity market come from the changes in the coalition politics that runs the Central Government? Or will the unfolding geopolitical situations shake the international markets? The answers to these questions, at least partially, are sure to manifest themselves this week.

This uncertain time needs unconventional wisdom — away from fundamentals or technical — the investment advisors suggest. Caution, however, may be the key watchword on the equity street in the next few days.

>jayanta_mallick@thehindu.co.in

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