Upside, with a dash of volatility

MARKET Watch

The market is set for another volatile week. Profit booking at higher levels and value buying at lower points may keep the indices volatile and range bound. With the 20,000 summit having already being surpassed, albeit before time as some would say, it remains to be seen whether Diwali would bring further cheer to the street.

The Sensex gained by 3.81 per cent or 733 points last week. Despite the absence of negative surprises from the RBI monetary policy and US Fed meet, foreign investors have been adopting a wait and watch policy vis-a-vis the Indian markets. Local buying and short covering have mostly lifted the market in the last couple of weeks.

Contrary to expectations of big bang purchases after the 25 basis points cut in interest rates by the US Fed, the foreign institutions turned into net sellers. They offloaded equity worth Rs 1155 crore in two trading sessions following the rate cut announcement. Domestic institutions have bought shares worth Rs 500 crore in the last two days and HNIs have clocked purchases amounting to Rs 450 crore in three days.

Short covering in the derivatives market has also been responsible for driving up the markets.

A dealer with a leading brokerage house catering to overseas clients said, "There are confusing signals for foreign investors. Valuations are stretched, but nobody is convinced by an advice to sell. Foreign investors are waiting in the wings to enter the Indian market, but data suggests they are not buying".

An analyst with the leading domestic brokerage house, Indiainfoline, said, "With most big events behind us and not many fresh catalysts in the offing, the market will be at the mercy of global market trends and FII investments. There are uncertainties surrounding these factors at the moment. Only time will reveal how things play out." But the outlook on Indian economy and corporate earnings continues to be positive.

"The next week will be a truncated one, as Diwali would be celebrated on November 9. Though the market has turned more volatile, the bulls would like to herald the new Hindu Year with a bang. But, the bears may also be lurking, ready to pounce on any opportunity," the analyst added.

Overseas cues are not favourable. Crude oil is hovering around the $100 mark. The Indian market bucked the Asian trend last week, to close in the positive. But the indices may not continue to rise for long as FII inflows have been subdued.