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Stock Market: Searching for a bottom

Sep 11, 2001

The eighteen month bear market -- till date -- has rocked the boats of the entire investment community. Although the retail investor holds the distinction of loosing his shirt first, all others have followed in due course. The broking community too is feeling the heat, as volumes on the Sensex have fallen by more than half since beginning of the year. Foreign Institutional Investors (FIIs), which have been a bulwark for the bourses, seem to have changed their view. This category of investors has pulled out Rs 1.1 bn in the month of September. Although early days, the quantum of investment has been sliding, which could portend a gloomy scenario. Mutual funds, which have been net sellers since start of the fiscal, have sold 633.9 m of stock for the month to date. However, this could also be due to redemption pressure on mutual funds. With both category of investors turning sellers a new buyer seems to have emerged. The unusual suspect is the retail and momentum investors who seem to be finding current market levels an attractive entry point.

Volumes on the Bombay Stock Exchange have been declining since start of the new fiscal leading to weakness in the Sensex. That said, average daily volumes on the BSE have stabilised, since July '01, between 45 m - 48 m trades. This could signal support for the Sensex at current levels. Also, penetrating the current support level (3,180 levels) could send the index back to the pre tech boom levels of 2,850 seen in the last quarter of calendar year '98.

Nevertheless, right noises have started emanating from Delhi, which could offer resistance to the negativism prevailing in the air. The Government is pondering on spending its way out of the slowdown. It has also consulted with industry captains on chalking out a revival plan. Investment in agriculture features on the agenda for boosting rural demand. Similar announcements could help lift sentiment but markets will look for the Government to 'walk its talk'.

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