Local issues steer market mood

According to the data from brokerage house Khandwala Securities, the Sensex has shown negative correlation with the Dow Jones on 11 of 20 occasions in April.

Earlier, Indian markets strictly reflected the performance of global indices such as the Nasdaq and the Dow Jones.

Experts say markets are now more concerned with corporate earnings than anything else because it is the earnings growth that decides the market direction in the long run. Foreign institutional investors (FIIs) turned net buyers in April, pushing the Sensex past 17,000 points.

An analyst at a foreign brokerage, who did not wish to be named, said, "FIIs are buying into the India growth story. They are betting on long-term prospects of the economy."

Inflation in India is currently at a 3-year high of 7.38 per cent and this has forced the Reserve Bank of India to tighten its monetary policy stance. The central bank hiked the cash reserve ration (CRR) by 75 basis points in a span of 13 days, asking banks to set aside more reserves.

Analysts are concerned about an economic slowdown arising from the rising inflation. Markets have taken cues from inflation numbers in the past and will continue to do so in the future.

The quarterly corporate numbers have been pretty good, with Infosys providing the much-needed boost to markets by reporting healthy results. However, derivatives losses are forcing companies and banks to opt for higher mark-to-market provisioning, adversely impacting their quarterly results.

"The market goes through phases. There are times when we are more coupled and sometimes less, but at the end of the day it is a global world. Right now, domestic issues are at play. I think markets were oversold and we are now getting incremental inflows. Quarterly results have been good and so is liquidity. Therefore, markets are slowly and steadily looking up," said Vikas Khemani, executive vice-president Edelweiss Capital.

According to an S&P report, Asian economies are proving to be resilient despite the global turbulence. Standard & Poor's Asia-Pacific Chief Economist Subir Gokarn said while the Asia-Pacific growth rates would slow somewhat, the region would still grow at a relatively fast pace in 2008 and 2009, buoyed by China and India.

Lotus Mutual Fund CEO Ajay Bagga said, "In the short term, there is a positive index correlation, but from a longer-term perspective, we will be able to see lesser correlation. In the long term, we may behave like Korea, where there have been FII outflows, while the vast corpuses of domestic institutional investors (DIIs) have kept markets growing. DIIs in India will also follow a similar trend."