Long-term view of equity markets seen promising

Despite huge swings witnessed in the equity markets in 2005 so far, most of the players are positive with their long-term outlook. It is the short-term view that seem to be raising the hackles of most.

Opinions are divided, with most players looking to the annual budget for direction but some others say that nothing 'extraordinarily' new will emerge from the budget.

Eventually, factors such as valuations, international oil prices and interest rates will play a role in determining the course of the market, brokers say.

Deepak Chhabria, COO, institutional equity, IL&FS Investsmart, says, "I expect the road ahead to be volatile, within a range 5,900 to 6,500 till the end of the results season. Only a significant third quarter corporate performance versus expectations may force a review. The budget will offer the next trigger, as the markets will look for continuation of policies and schedules for execution of promises made by the government."

Nishid Shah, CIO at Birla Sun Life Mutual Fund, says, "Though there is no doubt about the long-term out-performance of domestic markets, the short-term performance in equity markets may be impacted by inflationary pressure owing to volatile crude oil prices and the resultant impact on interest rates. Any slowdown in Chinese economy might affect the earnings of commodity players (commodity players account for 30-35 per cent of the earnings), while the performance of the US economy may have an overwhelming impact on world economy, especially Asia.

Vijay Bhambwani, CEO at BSPLIndia.com, says, "Retail investors have been the major losers in the recent fall. The FII's have not really sold significantly as yet. I feel the retail players will take a few weeks to recover from this fall and therefore will not offer meaningful support at lower levels. Lack of investible funds will be the biggest impediment for retail players. They will attempt to sell at higher levels and cap all gains in the near term. On the upside, the rally is likely to run into rough weather at the 1984-2000 levels where nervous bulls will come to offload. On the downside, the 1900 levels will be a floor price to watch out for."

Sashi Krishnan, CEO at Chola Mutual Fund says, "The fundamentals still look positive. The third quarter corporate performance has been good and on expected lines. The pre-budget deliberations indicate that the government will take forward the reform process with greater seriousness. Global trends, especially an appreciating dollar and increasing oil prices, could be pressure points for the market."

Gurunath Mudlapur, research head at Khandwala securities, says, "I think the markets will be in a consolidation mode for the next few weeks and would be primarily driven by profit bookings at higher levels. Trigger points such as the forthcoming budget make a good comeback opportunity for the markets provided there is enough mettle and fresh opportunities for the investors."

The market saw a smooth roll-over in the derivatives market on Friday and we have seen a mini-rally in the last two days. Players are expecting a pre-budget rally but the steep fall has taken a toll on retail nerves, brokers say.

"It is difficult to predict how the market will behave in the real short-term," a fund manager added.