Stocks

Dalal Street may totter as global influences reign

JAYANTA MALLICK | Updated on June 26, 2011

Turning inscrutable: Investors read an electronic display board of the BSE on Dalal Street in Mumbai. — Paul Noronha

Crude oil price movement, liquidity inflow to decide market's course

This week equity market confidence is likely to be dented. The sudden euphoria on the last weekend session may not work wonders. This news-driven and fundamentally weak market may behave erratically. It's for sure that Dalal Street dynamics are increasingly turning difficult to decipher.

The days of brokers' tips and investors' gut feeling doing the trick are not the winners any more. Even the available equity street researches are at best patchy, at worst grossly erroneous.

If one asks oneself – what would be the collective market judgment this week in the backdrop of news flows with contradictory implications, such as the proposed release of 60 million barrels of crude for 30 days by International Energy Agency (IEA) or the local retail price escalations of diesel, LPG and Kerosene last week – there would be quite a number of answers. None can possibly, however, confirm if the 4.6 per cent drop is the last one-day miracle crude oil has seen for the short term.

Game changer

If crude oil cools off for the next few weeks, it could turn out to be a game changer for Wall Street and Dalal Street. On the surface, it may appear ironic that New Delhi chose to time the retail price hike for the “sensitive” petroleum products when global crude price is in a relatively "safer" zone. But the chances of getting the negative impact muted seem more likely now than earlier when benchmark Brent crude was at around its recent peak level.

These were some examples of issues that are clouding the market players' mind.

The list of such economic as also market-influencing developments is long.

The two key questions – whether global recovery would pause for the medium term, and, whether India would standout amid another economic chaos – needed to be answered in clear terms.

Market is likely to remain nervous and also broadly risk-averse until clarity emerges.

On weekly and daily levels swings are perhaps inevitable. Liquidity inflow could be jumpy too. This year markets are evidently going through a structural change and the fall-outs could be far too many, market economists appear to think.

Currently, an aggregation of indications still suggests a downward bias.

But variously nuanced manifestations of overarching Indian economic reality in the stock market may not be successfully captured in any projection based on a mathematical model or a simple narrative. The crucial medium-term demand growth and corporate earnings growth projections provide a complex picture.

Take for instance the industrial metals and precious metals. The crosscurrents of speculative forces, regulatory changes, large-scale economic engineering and political compulsions in globally important markets have been discovering prices away from text books.

Valuations of all asset classes are likely to undergo unexpected convulsions. Equities, local ones obviously included, may come up with new paradigms.

Wait until December.

>jayanta_mallick@thehindu.co.in

Published on June 26, 2011

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