Market movers have a few options. Any strategy, based on quick reading of the developments in Libya or in Japan, is fraught with multiple risks. For the market players on Dalal Street, pricing in the stability of the Government at the Centre is an easier task than factoring in a flare up in crude oil price.

Market intelligence suggests that the common minimum strategy this week will be to stay put, stay hedged and stay alert.

Market is likely to continue to extrapolate all raw data flowing in from different corners and reflect a swinging mood. But the net weekly result could be a range-bound movement for the key indices.

It is unlikely that the UN-backed use of force against (Mr Muammar) Gaddafi itself will bring in calm in the global crude oil markets. For the global investors, geopolitical situations in West Asia and North Africa have thrown up a new risk dimension.

On Wall Street, treasury prices fell on Friday amid Libya's declaration of a ceasefire and joint actions by the central banks of G7 to halt the yen's strength. However, as bond yields are showing signs of an upward movement, the cost of borrowing is likely to go up, providing a fresh twist in the global financial market in the short term.

This week, Libya and the rest of the region, may not necessarily be a cause for cheers for the equity street. The aftermath of Japan's earthquake, tsunami and nuclear radiation-related news could continue to worry investors. They may tend to stick to safe havens for the time being, rather than spreading their commitments in emerging markets like India.

Market economists think that the US economy may be on the stronger recovery track in the near term, while Japan would have to face multiple challenges. Morgan Stanley thinks that the Japanese economy will undoubtedly contract sharply in the near term due to the shock to both demand and supply. “With deflation dragging on, the exit timing for QE is nowhere in sight, and the recent disaster pushes this back even further,” its country economist said in a note on March 18.

A possible change in dynamics in the global bond markets may cause a pull back in the equities markets. This is a strong a short-term possible development, the financial market experts indicate.

Locally, the consensus market assumption is that the Finance Bill will eventually be passed despite strong posturing against the UPA Government by the Opposition.

But any fresh impetus to change the market perception over the broad economic outlook is hard to come by in the near term. The current P/E multiples of the key indices do not leave room for an immediate upward directional call. The stock prices, according to most analysts, are more or less standing at their respective “fair” levels.

The probable downward direction of the Indian market may be in the offing, however. It may coincide with the expected surge in the international bond markets and a correction in equity markets. Will it come before or after the FY11 end-quarter result? Both are possible.

>jayanta_mallick@thehindu.co.in

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