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Stock market will continue to dance to the tune of foreign institutional investors. So far, they have pumped in more than $2 billion in 2012 that has resulted in an astronomical surge in the valuation of many Indian stocks, particularly from the battered mid- and small-cap space.
This was despite a caution issued by the International Monetary Fund.
Now, the question doing the rounds in Dalal Street is how long FIIs are going to keep the liquidity pipeline open?
According to the IMF, “The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated.”
The IMF further added: “Growth in emerging and developing economies is also expected to slow because of the worsening external environment and a weakening of internal demand. The most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area by supporting growth, while sustaining adjustment, containing deleveraging, and providing more liquidity and monetary accommodation.”
However, market took a cue from the US Federal Reserve Chairman, Mr Ben Bernanke's comment that the US will keep interest rates till the end of 2014. His mention that the US Fed is “prepared to provide further monetary accommodation” signalled that he is not averse to introduce one more round of quantitative easing (QE3). This comment led to a strong rally in longer dated bonds and in precious metals.
According to EPFR, a global fund tracker, investors crowded into emerging markets equity and debt funds. “Reflecting the general increase in risk appetite, redemptions by retail investors from equity funds fell to their lowest level in over six months,” said Mr Cameron Brandt, EPFR's global director of research.
Not a bad quarter
On the domestic front too, the reduction of cash reserve ratio by 50 basis points to 5.5 per cent by the Reserve Bank of India, will inject abut Rs 32,000 crore into the system.
Though the December quarter financial performance by many Indian companies so far has been weak, it was not bad neither from the marketmen point of view. This week companies such as Punjab National Bank, Siemens, ICICI Bank, Mahindra Satyam, Petronet LNG, ONGC, HPCL and Dr. Reddy's Lab, are scheduled to declare their financial performance.
According to market experts, there is a possibility of profit-taking and consolidation before any further move, given the recent surge. Besides, with the State assembly elections in a crucial phase, the market may see lighter attention in terms of trading volumes.
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