Bearish sentiment on bourses

By Oommen A Ninan

MUMBAI, MAY 14. Bearish sentiment continues to grip the bourses and market participants expect a further fall. Many stocks are now quoting at attractive levels with an outlook of three to six months. However, investors are advised to wait till the current volatility comes down.

``Globally markets are expected to be very volatile this week,'' said Mr. Shyam Bhat, Fund Manager, Tata Mutual Fund. One of the main reasons is the U.S. Fed rate meeting on May 16 and funds are cautiously moving. An interest rate hike of upto 0.5 per cent may have been already factored into the prices of U.S. stocks. But the hike could be as high as one per cent, it is feared. In which case the U.S. markets could slide further and this would have an impact on global markets. ``As far as the local markets are concerned the Sensex could take support between 4000 and 4100 levels,'' said Mr. Bhat adding, ``If however, the slide in the U.S. market continues the Sensex could recede to a possible 3800 level over the next two weeks.'' The overall sentiment is quite depressed and any pull back rallies are unlikely to take the Sensex beyond 4600 to 4700 levels, according to him.

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) lost sharply last week as foreign institutional investors (FIIs) intensified their selling and domestic operators panicked and sold some of their positions. The gains made in previous week due to selective FII buying in pivotal stocks like Infosys were easily erased as stock prices went into a free fall on the back of FII selling. The near vertical fall in most stocks especially in the B1 and B sections, has unnerved most market participants last week. Compared to the previous week's close of 4693.88, the Sensex closed last week at 4102.77, the lowest in this calendar year. On the first day of trading this year, January 3, the Sensex had touched 5375 and gone on to hoist an all time high of 6150.69 on February 14.

``The markets will continue to be range bound till a clear picture emerges in July,'' said Mr. S. Gopalakrishnan, head of equities, UTI Securities. According to him, it is a good market to invest considering a three to six month period outlook. But short term investors should be very cautious. There is no liquidity in the market. There are heavy redemptions on the part of foreign institutional investors (FIIs) and lot of funds prefer to keep cash. ``We are dependent on FII inflow,'' he said. In the present circumstances the tendency of fund managers is to keep cash till July. Further, though valuations look good there is no adequate confidence among the investors. More clarity will emerge externally and internally by July, then the direction of the market will be clear. Mr. Gopalakrishnan added ``now we are not seeing any bullish trend which is sustainable for a longer term.''

The fall in the rupee led to rumours in the market of FIIs repatriating their capital which in turn hit the stock prices. The FIIs have started selling aggressively after making record purchases since last November. ``In the current situation where most of the domestic participants have been hard hit, any further sales will intensify the pressure on stock prices,'' said Mr. Imran Contractor, head of research, Milan Mahendra Securities. Disappointing results of Zee Telefilm compounded the situation form last Thursday onwards. The inflating of its profits by Rs 185 crores by selling some of its program software to its subsidiary did not go well with the investors they dumped the stock in the market which hit the downward circuit in the last two days of trading.

According to Mr. Contractor, the fall in Information Technology, Communication and Entertainment (ICE) stocks has made many of the smaller ones attractive at their current low valuations. Some of them have single digit PE with promise of more than 50 per cent growth in the next two years. However, with FII selling just started, one should not be in a hurry to call the bottom of the market, especially when there are uncertainties about the monsoon in the coming days. The proposed increase in H1B visa quota by the U. S. to 2 lakhs bodes well for the technology stocks, which can rebound sharply.

Cement prices have remained under pressure with prices falling further in the Bombay market to around Rs 125 per bag. Mr. Gopalakrishnan said that the drought has hit the sectors such as cement and tractors very hard. Stock prices in cement sector remained under pressure with no major improvement expected in the scenario. ``However,'' said Mr. Contractor, ``takeover activity in some companies is likely to keep interest alive in them.'' Fast Moving Consumer Goods (FMCG) leader Hindustan Lever lost heavily as some of the FIIs trimmed their portfolios of FMCG stocks. The stock is likely to remain under pressure in case of FII selling.

``The bull run may emerge only in June,'' Mr. Bhat opined. This is because by that time the Nasdaq is expected to stabilise and the monsoon forecast is also likely to be clarified. One of the reasons why the FIIs have been aggressive sellers has been the apparent increase in weightage for China over India in the Morgan Stanley Composite Index (MSCI) which most foreign fund managers use as the benchmark. The other reason for FII selling is the weakening of the rupee against the U.S. dollar. The FIIs will turn net buyers only after the rupee stabilises, it is stated. In a nut shell, though fundamentally valuation of Indian stocks look extremely attractive, investors may have to be patient and take a long term outlook for their investments in individual stocks and in mutual funds.

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