Street to follow global cues

MARKET WATCH

The Sensex lost a hefty 5.48 per cent in value in one of the worst weeks in recent times . The index has over the past two weeks corrected to the tune of almost 1900 points from its peak.

The freefall began with the CRR hikes in quick succession, and inflation worries added fuel to the fire. Global factors led to a general meltdown worldwide and the Budget did nothing good to support the falling market. Now, with confusion reigning supreme, the Street, for its direction, will closely watch global cues in the coming days.

Director K R Choksey Shares & Securities Jigar Shah said, "The market will continue to follow global cues."

This assumes significance. First, the Chinese market began tumbling on reports that the authorities there would take hard steps including imposition of huge taxes to thwart heavy speculation in stocks.

The mayhem took its toll on other Asian markets though local authorities assured that no such measures would be taken at least in the short term.

Next came former US Fed chief Alen Greenspan's statement that the US economy could possibly stumble upon recession by the year-end. And, as if this was not enough, Friday's reports of the US market regulator taking actions against leading investment bankers/brokerages for insider trading dealt a heavy blow to the general market sentiment.

Risk indices were already putting India among high-risk markets. JM Morgan Stanley, JP Morgan and Merrill Lynch were warning against overstretched valuations of Indian stocks even before the global meltdown set in.

Coming to the Budget, some of its proposals such as dividend distribution tax and bringing IT under MAT disappointed industry players. Angel Broking CMD Dinesh Thakkar, however, said the Budget was well balanced given the near-term constraints.

He said, "The overall market direction remains neutral to its impact. The market will consolidate at 12500-13500 for some time before taking off again."

Thakkar further said, "All the good news have already been factored into prices, while negative news such as high inflation and rising interest rates are yet to be fully discounted.

So, our advice would be: Wait for the market to stabilise, and buy only on declines."

Several other brokers share the views as they believe the overstretched market has to correct to move on a healthy path. "As global triggers, domestic investors start selling once they come to know hedge funds are selling," one of them said.

Internationally, in Japan's carry trade, investors borrow yen-denominated funds at cheap rates and invest in foreign markets.

But now, with the recent interest rate hike, they are selling other assets to shift to the yen, which is affecting India too. In the recent fall, margin call pressures also had its impact on the market, making investors sell even their growth stocks.

Higher forex reserves, closing in on the $200 billion mark, are also not taken positively as they put pressure on the RBI to further control excess liquidity. Inflation, though fell to nearly 6 per cent, is still higher than the targeted 5-5.5 per cent range.

Summing up the current situation, Shah of K R Choksey said, "In domestic market, at present, long-term investors are in minority."