Stocks

Index may slide as negative news lingers

Jayanta Mallick | Updated on March 01, 2011

The drama on Dalal Street has turned bizarre. Market has seen a trend in shorting. Even if the Finance Minister presents a “market-friendly” Budget on Monday, the key indices' booster dose may not work for more than two sessions.

According to market intelligence, some buying and short covering could push the benchmark index up 500 to 600 points. But it would be difficult to sustain the upward momentum as negative news flows in from home and abroad.

The growing suspicion caused by the unfolding corruption at high places and manipulative practices on the equity street have eaten into the confidence of a die-hard bulls. Very few are willing to buy.

The downward slide is likely to resume in the later part of the week.

A drift towards 16,000 on the Sensex in the next few weeks may not be avoided. Market pundits, who are still going on the record predicting end of the correction this week, could be proved wrong.

Insiders say that segment heads of the same investment outfit group are speaking in two languages based on their respective compulsions.

“If one throws up a positive outlook, it is because he or she needs to cheer investors up and send the signal to clients that everything is fine,” said the head of equities research of an institutional broking outfit. “The investment advisor of the same fund group can afford to indicate otherwise if both are at arms length and do not share the same professional obligation.”

The overseas investors, who reportedly wish to buy Indian equities at relatively cheaper current valuations, have not been able to shrug off the rising risk perception. The fundamental risk of corporates producing lower-than-factored-in earnings growth is likely to haunt their minds till mid-April – the commencement of fourth quarter results and guidance declaration.

As the end-game in Libya is likely to begin this week, external factors such as higher crude oil bill for the Indian economy and its impact on the profits of the listed entities pose another risk element.

The contagion of geopolitical uncertainty in the oil and gas producing nations of North Africa and West Asia is likely to remain for some more time, and crude-oil price may keep Indian money managers on tenterhooks.

The market has priced in a Budget announcement that at best would tinker with economic fundamentals and would not burden the corporates.

If the way market behaved after the Railway Budget and the economic survey is anything to go by, the Budget “promises” may not amuse investors. Only actions on crucial sectors and indications towards fiscal consolidation and reforms can induce players to get into the ring.

>jayanta_mallick@thehindu.co.in

Published on February 27, 2011

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