The Hindu Business Line : Undertone bullish on Dalal Street

IT'S hunting time on the Dalal Street. Like in the jungle, all are queuing up for the waterholes. None would grudge if some cannot make it before 6000 points mark on the Sensex.

Last week on Thursday, the speculators decisively went in for short-covering and changed the complexion of the market. Friday saw unhesitant entry of all and sundry - the hunters, the hunted and the scavengers.

The foreign institutional investors, local high-networth individuals, corporates, traders and retail investors showed that nobody wants to miss the bus this time round. Domestic mutual funds, however, were net sellers through the week.

Writing on the wall: If an air of expectancy is the driving force now, lack of other investment avenues is a compulsion for all classes of investors. The target punting timeframe is the October-December quarter. Posturing notwithstanding, none is seriously long-term, when dynamics are changing fast.

The reality at hand suggests that the crude oil price trend will determine the recovery in the US economy this quarter. There aren't many readily available sweet and light crude sources other than the burning Iraq. On the other end of the reality bite is the China's doctored slow-down.

India appears insulated for the time being from the oil shock, thanks to Mr Mani Shankar Aiyer. Mr Chidambaram's blessings (capital gains tax relief and the modified securities transaction tax), expectation of decent corporate numbers and increasing FII flow should theoretically see the key market indices through this week.

The market has entered a liquidity-driven phase. However, a large chunk of domestic money-in-the-waiting is attempting to time the market.

Last week, the pivotals in the key indices quietly took over the baton from the mid caps. Incidentally, shifting of a large number of mid- and small-cap stocks to delivery-based trading from coming Thursday is likely to reduce the space for speculators-traders operating outside the Sensex and the Nifty baskets.

Valuation count-down: Who will make the valuation calls for the market heavyweights? It's a coalition of big players of course.

The new set of FIIs, who are entering the market before the benchmark indices launch themselves beyond their orbit, is looking at Sensex P/E.

Their basic assumption is that the country's average GDP growth rate would of around 6.5 per cent in the next two to three years, one of the best in the emerging markets.

For the FIIs already in, future growth discounting is the key to their investment strategy. They are likely to continue to hedge their positions and move ahead.

The domestic investors, including the retail ones, are likely to be driven by reduction in the investment avenues. (The yield for the 10-year 7.37 per cent securities, maturing in 2014, shot up on Friday to 6.37 per cent after the release of inflation data and closed at 6.41 per cent, a 16 basis point rise than its previous close.)

The indications are clear that the corporates, banks, HNIs are fastening their seatbelts. Some analysts feel that there may some corrections this week, but a trend reversal is quite unlikely.

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