Bears to rule on PN policy muddle

MARKET WATCH

The bearish trend on the bourses is expected to continue into the coming week too as uncertainty clouds the market.

Record high crude oil prices, a big fall in the US market on Friday, next Thursday's F&O settlement and the Sebi's final word on P-notes are likely to set the future course for the market.

Speculations on the Reserve Bank of India's (RBI) next move, the US Federal Reserve's meet during the month-end and the ongoing results season are enough reasons for the market to remain volatile and bearish for some more time.

The Sensex has fallen by 4.66 per cent or 859 points on a weekly basis. The index's rise was much faster and there is room for further correction in the coming days.

The first trigger could be the 367-point decline in the Dow on record-high oil prices, more problems in the banking sector and slower growth in corporate earnings, leading to further worries over an economic slowdown.

This could lead to a correction in Asian stocks and aggravate selling among FIIs in the Indian market.

From a peak on Thursday, the Indian market has fallen by 10 per cent on the Sebi's proposal to regulate investment through the P-notes route. P-notes have always been a sensitive issue for the market.

The Sebi and the finance minister have assured that genuine concerns of foreign investors will be addressed. But FIIs may continue on a selling spree until concrete norms are in place.

In the last few days, high networth investors (HNIs) and portfolio managers have been continuously booking profits. They are waiting for the right opportunity to invest, according to Kamlesh Kotak, head of research, Asian Market Securities.

"The market is expected to remain volatile as the F&O expiry approaches. Despite the finance minster trying to clear the air on the P-notes issue, FIIs may continue unwinding their positions till the Sebi comes out with a definite policy," said Kotak.

In last four trading sessions, FIIs sold much faster than the pace of their investments. They were net sellers to the tune of Rs 5,128 crore in the cash market and Rs 10,726 crore in the derivatives market.

The derivatives settlement is not going to be smooth either. "The Indian market is yet to react fully to global cues, which might be reflected in the next few days and a lot of local unwinding is yet to happen," said Siddharth Bhamre, a derivatives analyst at Angel Broking.

With uncertainty over P-notes continuing to spook markets, all eyes are now on the Sebi's meeting with FIIs on Monday.

The market regulator is meeting representatives of foreign investors through video conferencing. If the Sebi is able to calm their frayed nerves, FIIs could halt the distress unwinding of their positions. The market may then get a breather for a while.