Lacklustre Dalal Street to be guided by FII flows

Investors will watch the Apr-Nov fiscal deficit reading, due on Tuesday, and the manufacturing PMI for Dec, due on Thursday

Shares could remain firm for most of the thinly-traded week ahead, as inflows from foreign institutional investors (FIIs) are expected to continue despite the US Federal Reserve starting to withdraw its stimulus programme from January 1.

Investors will watch the April-November fiscal deficit reading, due on Tuesday, and the manufacturing PMI (Purchasing Managers' Index) for December, due on Thursday, which will help them gain insights into the extent of the economic slowdown. Shares of recent performers - mid-caps and information technology companies - could continue to see bouts of buying in the week ahead.

The decline in NSE's Volatility Index (VIX) to 14.66, the lowest since April, shows traders do not expect any sharp moves or major risks in the markets in the near term. VIX is a sentiment indicator, which reflects traders' expectations of sharp moves in the near term based on Nifty options prices.

Lacklustre sessions dominated the last trading week of 2013 with the indices rising less than one per cent through the week. The BSE Sensex ended at 21,193 while NSE's Nifty closed at 6,313 on Friday. NSE's cash segment volumes last week plunged about 30 per cent to Rs 8,749 crore, against a 37 per cent rise in volumes in the week before to Rs 14,238 crore. Participants said volumes in the week ahead would continue to remain under pressure,foreign and domestic institutional investors, activity would continue to remain muted.

"There are no major triggers lined-up in the market for the next four to five days. Global markets are also in a holiday mood. All the excitement will start in the next week, when we will see earnings' announcements-related activity in the market," said Sudip Bandyopadhyay, managing director, Destimoney Securities.

Analysts said sharp movements in either direction in the market would be limited due to low volumes, leaving the Nifty trading in a narrow range.

"The Nifty's range is expected to be anywhere between 6,250 and 6,320-levels. If these are breached, then on the upside markets could touch 6,400-levels while on the downside, it could touch 6,150-levels," said Shardul V Kulkarni, senior technical analyst, Angel Broking.

"All technical indications point towards a sluggish trading activity in the coming week. It will be a dull week and investors would want to end an eventful 2013 on a decent and quiet note," he added.

Through last week, FIIs bought equities worth Rs 972 crore (this includes provisional figures for Friday). DIIs continued to be net sellers at Rs 368 crore.

Analysts expect FII activity to pick up in the week starting January 6, when the FIIs are back. While the tapering of the US Federal Reserve's stimulus programme could impact foreign flows, analysts believe Indian markets would continue to benefit owing to the 2014 election frenzy. Analysts said if the fiscal deficit numbers disappoint, markets could slide.

"The release of these numbers will not be a market-moving event. There will be some negative impact because the numbers would be on the higher side. But even that would be limited due to low trading activity," said Dipen Shah, senior vice-president (research) at Kotak Securities.

According to analysts, movement in the market would be seen across sectors and driven mainly by news flows. However, stocks in the technology and fast-moving consumer goods sector could see some higher gains, owing to the assured outperformance of these sectors.