The Hindu Business Line : Undertone turns weak

Whether it is a sideways movement or a continuation of correction, liquidity may flow out of the market as a result of dip in "sentiment" this week.

THE key market indices were punctuated by some correction last week after a six-week-long rising spell. Over the week, the net fund flows from FIIs also tapered off. This reinforced the perception that FII liquidity had indeed been the driving force behind the market.

The Sensex, the Nifty and the S&P CNX-500 have already witnessed a spectacular run resulting in gains of over 50 per cent from its low on May 17 till first week of December.

The FIIs have pumped in over $7.5 billion so far this year, of which $1.5 billion came in during November.

The last Friday's net FII investment figure of Rs 151.90 crore was in stark contrast with previous Friday's figure of Rs 994.20 crore or last Monday's figure of Rs 473.40 crore.

The direct correlation between the overseas fund flow and the movement in the BSE Sensex and the NSE Nifty in the current state of the market is established beyond doubt.

It also shows that the investment strategies of the domestic players at present depend, to a great extent, on overseas fund flow. It further goes to underline the fact that investors are willing to play only a momentum game.

The record money that has come into the domestic market this year from the foreign institutional investors is not for the robust growth potential of the Indian economy in the long-term, but largely because of shrinkage in international investment avenues in the short-term. Thus the so-called long-term investors are yet to pass the test of time.

In any market, short-term investment strategies cannot provide the leadership in making a valuation call.

This week, the key market indices are likely to reflect a dilemma of the market makers. Even though the last week's correction in BSE Sensex was just 1.41 per cent and the overall market's advance/decline ratio did not turn negative, majority of the big players displayed jitters.

According to charts, further correction in key indices appears to be a strong possibility. Whether it is a sideways movement or a continuation of correction, liquidity may flow out of the market as a result of dip in "sentiment" this week.

The mid-cap stocks may continue to see churn and selective activity. A section of investors are likely to push the sugar, NBFCs and hotels stocks up.

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