Volatility to stay for now, say players

The Sensex has dipped 790 points (6.2 per cent) in just three trading sessions from the highest ever point of 12,612.38 on May 10.

Looking forward, analysts felt that the trend in emerging markets, domestic political worries, impact of F&O market activity, affect of mega IPOs on liquidity in secondary market are likely to be the key triggers for the direction the equity markets will take.

Rajesh Jain, Director and CEO, P-Sec Securities said, "The F&O activity in the coming eight sessions before the expiry of the contracts will have an impact on the cash market. There are severe speculative positions built up in the market and these are getting unwound. The market will remain volatile and will not show strong upward movement at least in this month. Also the forthcoming results from Tata group companies will direct market movements."

According to Rahul Rege, Senior Vice President, Sharekhan, "the three-day fall has been due to over-leveraged positions getting wound up. The victory of Left parties in Kerala and West Bengal was expected and also the mega issues will not affect the liquidity position in secondary market. Overall the market mood is bearish and when the market sentiment is weak, everything else is magnified."

Markets around the world are expecting more robust inflation in the US and elsewhere.

That will result in benchmark US lending rates climbing above the current 5 per cent. Higher US interest rates lead to capital flight from emerging markets.

Political worries are also weighing on the market, according to market analysts. The victory of Left parties in Kerala and West Bengal elections will enhance their clout at the centre.

The Left has been opposing a number of economic initiatives of the UPA government such as divestment of Navratna public sector undertakings, hiking foreign direct investment in insurance, opening up retail to foreign investment and hike in petroleum prices.

Several upcoming mega IPO issues are expected to affect the liquidity in secondary market. Last week, DLF announced its IPO sized about Rs 13,000 crore.

It is feared that the large DLF IPO will suck out liquidity from secondary market.