Nov 10, 2000|
What will be the market driver?
After speeding away for 7 consecutive days the markets finally hit a speed breaker yesterday. They have rallied 404 points (10.9%) over the span of a week. Is it ready to take off again today?
Over a fortnight the markets have consolidated their positions after factoring in all the disappointing news in mid October. The rally was primarily lead by the old economy stocks that offered a lot of value buying opportunities. Further, there has not been any frenzied buying in techs. This probably gives credence to the view that the rally is more as a result of flight to quality.
One observation in favour of this theory is that foreign financial institutions (FIIs) have been net buyers for the last five days. This has added to the positive sentiment on the bourses. Meanwhile, mutual funds have turned sellers. In our earlier pre-open report we mentioned mutual funds having substantial cash positions. They seem to be continuing with their strategy of staying liquid.
There seems to be a gradual change in the thinking (finally) of the markets. We are seeing participants question the rationale of aping the NASDAQ. There is consensus being built of delinking the domestic bourses from the NASDAQ. This will result in a loss of a trigger but is a welcome development.
Nevertheless, as of today, it still is an important trigger. However, the NASDAQ is in for some nervousness with corporates anticipated to report lower than expected earnings (led by IBM). Further, the fuzzy political situation in the US is keeping the markets at the edge of their seats. Consequently, we are not likely to see a near term NASDAQ driven rally.
Coming to the domestic front. The disinvestment committee is scheduled to meet on Saturday. Markets will be expecting some good news from the intelligentsia. This could have also caused the speculative rally in refining stocks yesterday. Today also we may see more speculative buying in PSUs which may be on the disinvestment block. However, the failure of the disinvestment committee to match expectations (as is usually the case) is likely to see a sell-off in these stocks on Monday.
Above all we must also remember that today, being a Friday, is the last trading day on the BSE. This may bring in some profit booking as the markets have gained significantly over the last one week. This might put up a downward pressure on the markets.
On a longer-term horizon, the hint of a slow down in the economy could be a blessing in disguise, as the Government hastens the reform process to keep the growth wheel moving. Consequently, second generation reform announcements could be a likely trigger.
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