Fears of bear phase loom large

MARKET WATCH

Consistent weakness in the stock markets week after week has kicked off debate over the markets entering a bear phase. However, some players think it is too early to conclude anything. The levels indices had hit in the second week of February are now being projected as "achieveable during the year".

"Next week, the market's direction will be determined mainly by two international events -- the meetings of Bank of Japan and the US Fed FOMC to review the situation," said Paresh Gandhi, director, B M Gandhi Securities. While BoJ raised interest rates in the third week of February, the next week's meeting will be important as it will have to take a call on the unwinding of carry trades and strengthening of the yen.

The US Fed meeting is crucial as bad debts are rising in sub-prime lending markets and a possibility of slowdown in the US is looming large. The inflation figures in India were higher than expected, while in the US a falling consumer confidence has given rise to a feeling that the Fed may not signal a cut in interest rates. In both the cases the observations matter and not the measures.

Anything affecting global equities will have a direct impact on the domestic bourses too. But there are local worries too. Consider this: the Sensex was at 12366 on October 3, 2006. The index hit a low of 11564 on April 3, 2006. On March 16, 2007, it was at 12430. Going by the Sensex movement in the second half of 2006-07, one cannot expect returns from the market.

This holds true for the whole financial year too. This means that those who stayed invested have not made money from the markets. It also seeks to remind investors that taking long-term view is fine, but booking profit is equally important.

Taking a call on fundamentals is one aspect. But understanding the unpredictable games that operators play is more difficult. According to the market grapevine, two present and former bull operators are fighting it out which is creating a friction in the market. Which faction wins the game will be known in the days to come. Currently, the Nifty is oversold and short covering may lead to some upside, but selling or profit booking may cap it.

Operators are also seen playing index management games where they target a level and push up or hammer down heavyweights such as Reliance, Bharti or ICICI Bank. Currently bears are targeting some technical supports which they are trying to break. Once they succeed, those following the technical levels may sell, which will make the bear cartel's game more easy. Such games are also causing volatility in the market.

The advance tax figures last week did not meet the expected level. Brokers paid less tax as their incomes were not up to the mark. Many players are waiting for earnings projections for the next year from companies which could set the trend. However, some downgrades of earnings projections cannot be ruled out.