Party to continue amid correction buzz

MARKET WATCH

The momentum is back in the markets though the "correction" buzz refuses to die down. The latest expectation is that the market will see new highs before a correction sets in.

Fiscal 2007-08 has seen the Sensex climbing 2195 points already. After an ominous beginning on April 2 when it lost 616 points after the Reserve Bank of India increased the cash reserve requirement, the Sensex rise has been unabated. The weekend saw the index closing just a tad short of its all time high. Monday should easily see the Sensex breaking the record unless of course the signals from the Asian markets are really weak.

The US Federal Reserve's move to maintain interest rates was in line with market expectations. The tone of the statement was positive on growth as well as inflation. It, however, continued to highlight the persistence of inflationary concerns going forward. In terms of indications for future policy actions, the Fed's statement remains unchanged. It has indicated that future developments in growth and inflation will determine the course of action.

Locally, inflation worries have tapered off with the inflation number touching a 13-month low. Liquidity is good but the way banking stocks are moving the market, it seems no one is worried about monetary actions.

Cement counters, which were laggards in the recent past, have shown a sharp rebound on the hopes that the government will not interfere in pricing. In fact, the finance minister also said that there won't be any price related restrictions on the steel and cement sectors.

All these factors were reflected in the derivatives rollover last week.

Cement, banking and pharma stocks witnessed strong rollovers while those were weak n sugar, oil & gas and IT.

Observers said that since other markets "" gold, properties and commodities "" are not doing well, the retail investors' interest is moving towards stocks and mutual funds again. In fact, the recent issues and listings have boosted the confidence of the primary market. DLF shares are expected to be listed during the coming week. The liquidity seems strong and foreign investors, who pay only 10 per cent at the time of application, will have to deposit the balance on allotment. It is to be seen if they are booking profit for that or bringing in fresh money.

During the week, IDBI announced sale of two per cent of its stake in the National Stock Exchange at its enterprise value of $ 2.5 billion. The valuation of NSE will go up further as NSE's profit, which was Rs 191 crore in 2005-06, will certainly be higher in fiscal 2006-07. Any further stake sale by any of the present investors will fetch higher valuations. The valuation for the rival exchange "" Bombay Stock Exchange "" will also rise in tandem once it revives derivatives trading. BSE's entry in commodity futures by taking a strategic stake in Ahmedabad-based NMCE will also contribute to this.

Commodity exchanges are also expected to follow suit once the government announces the guidelines on foreign direct investment.