Market movers did it again. The Sensex notched a gain of 3 per cent last week. Very few would grudge the success amid thin volume and inflow from ETFs and hedge funds helped operators a lot, market intelligence suggests.

This week may, however, call for a breather. “The key indices have moved up too fast and too soon. Action may shift to B group stocks, while the Sensex and Nifty could drift a bit,” said Mr Gul Tekchandani, an independent strategist.

A fund manager, who handles a number of overseas short-only players here, said the inflow in the past couple weeks were largely driven by very short-term strategies. “Early entrants — those who bought in the first three days of eight-session rally — know that they have already generated a momentum that produced 8-9 per cent jump in the key indices. If there is no follow-up buying from other corners this week, then they will start selling. On an average, they will, however, pocket five to six per cent returns in a fortnight,” he said.

According to Mr Saurabh Mukherjea of Ambit Capital, the reasoning put forward in case of such short-term risky trading strategies may sound fallacious. But for those adept at carrying out such exercises in different markets, it is a way of earning an alpha.

Mr U.R. Bhatt of Dalton Capital said that around $1 billion was more than enough to push the market up in its current shallow state. “The money power was more effective in moving the market as there was significant build-up of shorts,” Mr Bhatt said.

Fundamentally, market is not on a strong wicket. Good numbers are all there in the prices; perhaps, a little more than warranted. Corporate sector is yet to indicate a profit growth in 2011-12 that should fetch higher than the current premiums.

The directional triggers would actually start surfacing from this week. Market observers are not getting carried away by the technical or tactical moves. The consensus opinion seems to indicate caution in terms of factoring in earnings growth.

The central bank has not yet signalled loosening of liquidity. The commercial banks' deposit rates have not shown signs of easing. According to Morgan Stanley economists, the move in deposit rates far outstrips the move in policy rates, taking monetary policy into restrictive territory, while real policy rates remain near zero.

“A principal concern of the RBI is to bring credit growth (23 per cent in March) closer to deposit growth (17 per cent in March), something that higher deposit rates should help with.”

It expects further policy rate hikes.

According to Deutsche Bank, demand remains robust given the trend in lending, wage growth, and PMI (both manufacturing and services). “Hence our 8.5 per cent growth forecast for FY11-12 remains unchanged for the time being. Rising real rates and the risk of demand destruction due to persistently high inflation are clear negatives for the growth outlook, but conditions need to tighten considerably more before we would feel the need to revise our growth forecast,” it added.

jayanta_mallick@thehindu.co.in

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