The Hindu Business Line : Dalal Street stays tuned into global cues

This week, Indian Equity Street may find itself in a jam; opportunity of advances in blue chips is limited. However, in the mid-cap space, selective smart moves are on the cards, largely through HNIs and a few operators.

The mutual funds, hit by redemptions and slower inflow in July, have preferred to stay in more cash. Till August 12, mutual funds had mopped up around Rs 229 crore-worth equities. Corporate treasuries and small investors have not been very active except for a little churning and profit booking. FIIs until August 13 this month remained barely in the positive with around Rs 100 crore in net investments.

According to market sources, most of the troubled global banks in India have seen merchant banking, broking, and investment activities slow down 30-50 per cent.

Global leads

Leads in the global investment arena are still fuzzy. Globally it still appears to be in the doldrums. In the beginning, there was the US mortgage market crisis, which engulfed the credit market. It has had its influences in the currency markets. And now the commodities markets are witnessing hiccups.

American billionaire Mr Thomas Boone Pickens’ hedge fund, BP Capital, which manages about $7 billion in assets, sank reportedly 35 per cent on its oil and gas bets in July. He now feels that oil prices may drop even further, to $110, sometime in the next few weeks, but won’t dip below $100.

The US Department of Transportation said last week vehicle travel declined for the eighth month in a row.

Oil prices fell early last week as a 7-per cent drop in crude imports in July by China, the world’s second largest consumer, outweighed concerns over supply disruptions resulting from the conflict between Russia and Georgia. According to US official data, the West Texas Intermediate prices, which averaged $72 per barrel in 2007, are projected to average $119 per barrel in 2008 and $124 per barrel in 2009.

It also projects continued declines in total US petroleum consumption for most months through the end of next year. The declines are not expected to be as large as they have been over the first half of this year, with 2009 average total consumption projected to be about 120,000 barrels a day, or 0.6 per cent lower than the 2008 average.

The US real GDP year-over-year growth is projected to slow to 1.3 per cent, 0.8 per cent, and 0.5 per cent over the next three quarters respectively, before starting to recover in the second half of next year.

Finally, temperatures in the (US) Northeast during 2009 are projected to be slightly colder than 2008, with heating degree-days about 3 per cent higher — not enough to significantly affect US petroleum consumption. Other non-official projection suggests crude prices may stay bellow $110 to $102 till October. But after that, prices may spike up again.

OPEC is overshooting its informal output target, with Saudi Arabia leading the way after the kingdom pledged to meet rising demand and help tame runaway oil prices. The producer group meets on September 9 to decide on future output policy.

But, will the Chinese growth engine take a break after the Olympics and tweak the global growth trend?

Ground reality

On Dalal Street, players are keener to pick up global cues than local ones in forming a six-month to a year outlook. Strategists are reconciled to a ground reality before the next election. None is expecting big and bold reforms in the intervening period.

The soft trend in crude oil is believed to continue, though with temporary spikes stemming from geopolitical uncertainty and weather-related demand. The Street expectation is that the inflation growth may be off its peak towards the end of this month and early September.

Hopes are also pinned on the positive impact of the pay rise for Central Government employees onconsumption and investments. If the expectations are met then chances of a down side movement would be limited. But, market may not overlook any negative development that could have a bearing on corporate earnings.

(Reponses may be sent to jayanta_mallick@thehindu.co.in)

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