Volatility may dent primary market

MARKET WATCH

The market is likely to follow global cues and remain volatile at the higher levels in the next week. The volatility has begun taking a toll on initial public offers (IPOs).

Purvankara repriced its issue at the lower end and extended the date of the offer. The next to bear the brunt may be IPOs listing at a discount to their offer prices. Some public offers are expected to be deferred, given the volatile market conditions.

Earlier, Everon Systems and Simplex Projects listed at a decent premium in an otherwise volatile market. Traders, however, believe that real estate company Omaxe, which is set to list in the middle of the week, may not get the response that DLF and HDIL received.On a weekly basis, the Sensex saw a mere 96-point decline. But the unnerving volatility has led to fears that recovery may not be sustainable.

Many global factors are likely to steer the course of the domestic market during the next week. On Friday, the US markets were down by 2.5 per cent "We believe the market will remain range-bound for some more time till the global markets stabilise and the Sensex would move in the range of 15,400 to 14,900 points," said Paresh Gandhi, director, BM Gandhi Securities. The support for the Sensex is likely to be around 14,900 and for the Nifty at 4,311.

The next week will be crucial as the US Federal Reserve will meet to review its monetary policy on Tuesday. This is the first meeting after the world markets saw a big fall, reflecting a setback in the US sub-prime mortgage loans. The Federal Reserve is likely to provide clues to the quantum of credit risk in the US economy. Though the US central bank is not expected to change the interest rates, its observations on the sub-prime assets and rising corporate bond spreads will be crucial.

In recent days, the dollar has been strengthening against the Japanese yen. Some unwinding of the yen carry trade has already started on expectations that the Bank of Japan will raise interest rates during the month.

Back home, the short F&O positions are being covered very fast in recent times. The trend is continuing even after the expiry of the last derivatives settlement. Many FIIs have been shorting the Nifty to hedge their portfolios. In the cash market, they have remained net sellers, while domestic institutions have turned net buyers in the last few days.

According to the data available on stock exchanges, FIIs sold shares worth Rs 4,494 crore in the last six trading sessions, which is equivalent to their net purchases in the secondary market for the first six months of 2007. In the last six sessions, domestic institutions bought shares worth Rs 3,205 crore.

The domestic market is closely watching global markets. Explaining the market behaviour, a broker says Asian markets are closely followed when they open and close. At 2.30, when the London market opens, the domestic market starts adjusting to it. If the market remains up in the first half of the day, it is not able to hold the gains and positions are wound up fast.

The market will also closely watch the industrial production data, which may be announced next week. The exports data were on expected lines and showed a slowdown on the rising rupee.