F&O expiry to set the trend

MARKET WATCH

In the absence of any negative triggers, markets took cues from global events, which were positive at least for the time being. Asian markets in general rose to their three week highs last week.

This week will be volatile for domestic markets and much will depend on the F&O expiry and rollover. Stock-specific movements can still provide some direction to the market. Volumes may be low as players will be cautious ahead of the results season.

Last week, opportunists had reasons to buy over-sold cement and banking stocks and telecom saw news-driven buying. A reduction in the access deficit charge and the raising of the foreign investment limit to 74 per cent put telecom shares in an upward mode. Reliance was another market mover. If heavyweights, such as Reliance, come out with more news, it will give some direction to the market this week.

Mutual funds are sitting on a huge pile of cash and the rising Sensex is making them nervous. They are awaiting some early indications from the upcoming results season. But the rising market is testing their patience.

"Funds have to benchmark their returns against the market barometers. If in a rising market they are not staying invested, they may be seen as underperformers. The market gains strength, if they turn buyers," said Sachin Neema, head of research, India Infoline. It is feared that for the enitre financial year, MF returns may not be attractive if discounted with inflation.

Neema believes that the next year is a period of consolidation for the market and the Sensex will move in the 12,000-15,000 range during the year. It will not stay below or above the range for more time.

The country's inflation has stabilised though the level is high compared with the envisaged range. The government does not seem to be panicking. However, early April's Exim Policy will be keenly awaited for any steps on the inflation front. The government did not wait till the Exim Policy to extend the period for import of wheat and the ban on pulses exports.

The fourth-quarter results are awaited keenly, as projections by market leaders are the trendsetters for the next financial year. An analyst with a domestic brokerage said the falling market had already discounted a likely earnings slowdown. Whether they would be below the revised expectations is to be seen.

On the global front, Bank of Japan has signalled that it is in no hurry to raise the rates and even the yen was showing some weakness. This gave rise to the speculation that carry trades may resume and certainly unwinding may not act like the sword of Damocles.

Simultaneously, the US Fed hinted that it has flexibility to either raise or cut interest rates, providing a positive trigger for global markets to improve.

As far as global cues are concerned, the medium-term outlook is still unsettled. Neema said, "Nobody is convinced that issues such as the US slowdown and unwinding of yen carry trades are settled. These may come back to haunt the markets again."