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The downside movement risk for the benchmark index seems not off yet. The Sensex has come close to its short-term trough at 15,500 points. This week, the index may touch its lowest point in the current downward cycle and then prepare for a sharp upward turn.
The end of near-month derivatives settlement on Thursday could see the peak-out of the oversold positions. However, this may not stamp out of the negative sentiment immediately.
Market desperately needs positive news to trigger a bounce back. According to market intelligence, this could come within a fortnight from the domestic front. There is a strong expectation in market circles that later this week or early next week, the Government may find ways to get out of the “Lokpal Bill imbroglio”.
Disinvestment cheer
As a red herring, the Government may like to cheer up market with specific news on the disinvestment front. These could swing the market sentiment even if Wall Street spreads out more gloom.
Some market observers feel the Government needs to signal “return of governance” in the short-term.
According Mr Saurabh Mukherjea of Ambit Capital, the market has been grappling with the issues of corruption and absence of governance for sometime now.
However, he was more concerned over the continuing policy-paralysis.
Mr U.R. Bhatt of Dalton Capital Advisors said that absence of good governance affected the implementation of projects, particularly large infrastructure ones.
Corruption, on the other hand, had been distorting fair competition in the capital market.
“There is still hope that policy makers will take some steps,” he said.
Major investment house Morgan Stanley has revised its December-end estimated target of the Sensex to 18,850, 15 per cent lower than its earlier projection.
Other principal negative factors, according to the brokerage, were corruption and slowing growth. It also estimated that GDP growth would shrink to 7.4 per cent in 2012.
Deutsche Bank has given a call for 7.5 per cent real GDP growth. In its view, the slight moderation in July inflation would be of only marginal comfort to the RBI before September 16 policy review as headline WPI, core inflation and inflation expectations continue to remain well above the central bank's comfort range and August WPI inflation will likely be higher, between 9.5 and 9.7 per cent, than the provisional outturn of June and July.
Dalal Street's die-hard optimist circles suggest that, amid the current uncertainty, bets be placed to reap in profits in the medium term.
According to Mr Kishor Ostwal of CNI Research, the market consensus on Sensex 2011 target still remains quite strong and the outlook for FY12 Sensex EPS is 1250 and 1500 for FY13.
A number of players think the local equity market would perform better in the third and fourth quarters than in the first two . Hopes are that overseas investors would start returning to Indian equities from September-October and local market participants would begin regaining confidence from thereon.
>jayanta_mallick@thehindu.co.in
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