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Storm clouds on the horizon

Ashok Jainani

THE shape of things to come in the week ahead looks almost similar to what it was in the previous week. Some may like to call it ``rangebound'' and ``narrow trading zone'' or call it just flat.

There are immediate local reasons such as the cyclone and political gestures by the ruling coalition to make peace with the neighbouring State. And, then there is the economic data suggesting fall in consumer confidence and lower GDP growth in the US.

Investigations into the recent market manipulation by the market regulator, the Securities and Exchange Board of India (SEBI), and the Joint Parliamentary Committee (JPC) is ``in progress'' and any (startling) disclosures in this regard might also impact trading sentiment.

The only concern among marketmen last week-end was the cyclone that was threatening to hit Gujarat and the likely damage that it would cause to the already ravaged State. The movement of the cyclone and its impact would determine the mood, brokers and de alers said.

But can God be so cruel to market and economy in general and the people of Gujarat in particular, ask some brokers. The State is still reeling in the aftermath of the devastating earthquake that caused damage to life and property four months ago.

As per the last report, the cyclone stabilised about 500 km away from the Gujarat coastline. ``But the calamity cannot be wished away unless it subsides completely,'' Mr Sunil Shah, Director, Evergreen Broking, said.

Trading volumes have been dwindling over the past two months on the back of the ban on short sales in mid-March and ban on badla (carry-forward) and introduction of rolling settlement from July 2. Along with this, circuit-filter limits on specific stocks would be removed.

The new dispensation will mean drying up of volumes on the exchanges and increase in volatility in stock prices. Reduction in volumes in the absence of carry-forward facility coupled with compulsory squaring up of existing forward positions within the st ipulated time-frame, and removal of circuit filters will further scare retail investors away from the market.

``In such a scenario, you can't take a view,'' dealers said.

``The retail players will do well to see the writing on the wall and start preparing themselves to excel in trading of new products,'' Mr Darshan Mehta, Chief Executive, Moneypore.com, said.

Analysts at Motilal Oswal Securities recommend reducing exposure to less liquid stocks and stocks with high price-earnings (P/E) ratio. ``The former might witness evaporation of liquidity, while the latter face the risk of a sell-off on the back of over- ownership,'' analysts said.

The prospects of normal rainfall in drought-prone areas might bring cheer to select old economy stocks, dealers said. The pre-announcement season (before June quarter results) is expected to begin soon in the US. ``This can lead to some pressure on the t echnology stocks which had moved up last week,'' dealers said.

Old economy heavyweights such as M&M, Tata Steel and L&T are expected to announce their fourth-quarter and annual results in the week ahead will provide direction to the stock prices.

However, if prices drop sharply on bad news, Motilal Oswal Securities analysts recommend buying old economy stocks such as BHEL, Tata Steel, Grasim, L&T, HPCL, BPCL, Hero Honda and State Bank of India.