Date:24/07/2006 URL: http://www.thehindubusinessline.com/2006/07/24/stories/2006072402560400.htm

Back Sensex may dip through support levels

JAYANTA MALLICK

Overseas funds may exacerbate the process of outflow

The market is waiting to see how the RBI articulates its outlook on July 25 and throws indication on its moves on interest rates, liquidity, currency performance and inflation.

DEPRESSED MOOD: The expression of the crashed market is vivid on the face of a share trader - Paul Noronha

Last week, international and domestic macroeconomic crosscurrents caused significant erosion in Indian indices.

The BSE Sensex shed 5.5 per cent, while the Nifty was dwarfed by 5.7 per cent. This was the biggest setback for the benchmarks in six weeks. Rupee dropped to its three-year low on Wednesday before recovering marginally.

The net weekly FII outflow stood at Rs 336.75 crore (taking into account the provisional figure for Friday). The local mutual funds were also net sellers.

The market is waiting to see how the RBI articulates its outlook on July 25 and throws indication on its moves on interest rates, liquidity, currency performance and inflation.

Local stock market is likely to weaken further even if the first quarter corporate results meet the built-in expectations. Profit-taking may become the order of the day, as investors are likely to turn paper gains into real ones before sentiment dips further. It may not be surprising if the Dalal Street benchmark indices break down immediate support levels over the week. Very few players appear to have guts to be contrarians now.

The business of market making is decidedly out of fashion.

In the international markets, worries over a global slowdown seem to be overtaking the fears of inflation.

In the minds of global investors, Indian equities could have remained insulated in the near term from such uncertainties had the authorities sent out strong signals that the domestic economic momentum was intact. The performance of the rupee faltered further last week, as oil marketing companies reportedly bought dollar heavily to fund oil imports. In the backdrop of steady FII outflow and sliding rupee, concern over current account deficit, which is getting disproportionately high, may create a vicious cycle.

Overseas funds may exacerbate the process of outflow of portfolio investment money, which, in turn, is likely to cause greater than expected deficit in the June-September quarter.

Not-so-encouraging economic data and disappointing earnings from Intel last week have clouded the outlook for the US economy.

Though the US Federal Reserve reduced the apprehension of another rate hike in August, the Chairman, Mr Ben Bernanke's suggestion that inflationary pressures might be giving way to an economic slowdown has raised new worries. Metal stocks immediately reacted negatively.

It seems that owing to the overall pressure, the consolidation range between 10K and 11K, which had gradually emerged after the meltdown in May, is unlikely to hold in the immediate term. The benchmark indices may see lower intra-day spikes trending towards lower levels.