The Hindu Business Line : Both bull and bear lack conviction

There is an old saying: crowd is wise except when it isn't. If you can judge the crowd correctly, you have an advantage. But if you cannot judge, better leave it at that and look for an alternative.

The current market psychology amply describes a situation when everybody is trying to the gauge the collective wisdom in the short run and eventually failing to do so.

Interestingly, this seeming confusion is lending a balance to Dalal Street.

The anatomy of equanimity has apparently contradictory legs - if scepticism about valuations supports one, the other is equally strongly propped up by perception of growth and under-valuation.

Waiting for Godot

For the last few weeks, a large section of investors has been awaiting a sharp correction for fresh market entry.

There has also been emphasis on shorts in the derivatives. But since there is hardly any conviction in either the bullish and bearish stance the near term, tactical positions have been reversed at the drop of a hat.

The money flow tap has also been manipulated accordingly to hedge against risk keeping a window, howsoever small it is, open for lapping up opportunities as well.

This week, the market is likely to find it convenient to postpone a decision regarding a directional call.

The settlements of positions in the derivatives may swing in favour of a quiet rollover or a measured short covering, depending on overseas and domestic clues.

In other words, neither a corrective downward plunge nor a euphoric breakout is on the cards.

Overall caution and compulsion may provide the benchmark index - Sensex - strong resistance and support at 500 points upward or downward from the current level for its weekly movement.

It seems that investors' preference in deferring a decision against a new momentum stems from the forthcoming quarterly results season.

The negatives (for IT sector) emanating form strong rupee vis-à-vis dollar and faint indications of a downward demand adjustment (for some of the auto companies) have largely been factored in the stock prices.

Even market strategists feel that an extended time for consolidation, after all, is not a bad thing for a fresh valuation exercise at higher levels.

In view of the fact that the spread of monsoon (or lack of it) is yet to manifest itself in full and may take another few weeks and an absence of indication of a change in monetarist stance of the policy makers, aggressive investment tactics may prove counter-productive.

Wild card

However, theoretically a sudden change of sentiment, based on news, flow may always kick-start a momentum.

A select group of mid-cap and small cap stocks have gained steam of their own and may beat the broad market.

In terms of sectors, the banking stocks may also prove to be an out-performer in the near term.

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