The Hindu Business Line : Benchmarks may correct downwards

DOMESTIC investors, led by market makers, were largely behind the smart recovery on the Dalal Street in the past fortnight. The overseas funds did not pump in a great deal of money and domestic mutual funds were net sellers in the last two weeks. In the first two days last week, FIIs were net buyers, but later turned net sellers.

The attempts by the local players to bring about a sense of bullishness in the market, forced some short covering by the institutional players. However, this may not be sustained for long. A slowdown in liquidity may apply breaks to the sharp upward thrust.

This week, the benchmark indices may correct downwards.

Even though fundamentals of the market do no seem to have taken a beating, overseas fund inflow may decline. The current valuations do not seem to attract a great deal of foreign investors. Some of them appear to be waiting for the opportunity after a substantial correction.

A few others seem to be scouting for fresh ideas and growth impetus. A large part of the FII activity now is restricted to churning in the portfolios. On the whole, it may display a temporary lull.

For certain market observers, the weakening trend in global crude oil prices and second quarter profit growth recorded by the domestic companies are positive cues. But a large section of investors is psychologically looking for a consolidation phase beyond 8000 points on the Sensex. The last two forays of the benchmark index above the 8000-point mark came about in a short time.

To breakout beyond the 8500-mark on the Sensex, the market needs a greater dose of liquidity.

The market makers need to be strongly convinced about the growth prospects to push valuations further up.

If the domestic mutual funds and FIIs do not take a firm call on the frontline stocks, the market is likely to drift down in the short-term. But a sharp fall in benchmark indices is unlikely. Overall, the market may trend towards consolidation in a weekly timeframe.

The IT and oil stocks are likely to fare better because of the current strength in the greenback and softer bias in crude oil prices.

The logistics and auto sectors are also likely to draw attention. In the absence of new developments in the home market, trends in global markets may also continue to influence daily movements.

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Benchmarks may correct downwards