Markets to dither, bide for cues

The equity markets are expected to drift lower during the week while waiting for cues from important domestic and global developments. Market experts are of the view that the broader sentiment in the street is still negative, with very few investors ready to take fresh positions.

On the domestic front, the week will see the government announcing industrial production numbers and inflation, while Infosys will release its quarterly numbers on Wednesday. Last week, the benchmark Sensex and the Nifty lost more than one per cent each.

India Infoline, in its client note, has said the index of industrial production numbers, along with Infosys results and inflation, would be closely followed for cues. "Extra vigilance is called for, given the volatility and uncertainty in world markets," it says, adding that a weekly closing above 4,850 has provided some relief for the markets, but the overall trend still remains negative.

Analysts, while agreeing there could be some upside in the offing, say that the broader sentiment is still quite negative and traders and institutional investors are sceptical of placing large bets.

HDFC Securities say that even if the market moves higher in the early part of the week, the previous highs could "cap the gains and push the markets lower once again." The domestic brokerage feels the Nifty will remain range-bound, till it breaks out of 4,720-5,198 levels.

Interestingly, the recent past has seen the Indian markets react more to global news flow and the current week is expected to be no different. Reports suggest that many earnings estimates have been trimmed by analysts in light of the turmoil in Europe, a staggering global economy and other events, which resulted in a more cautious forecast.

Over the weekend, French President Nicholas Sarkozy will be meeting the head of the IMF, Christine Lagarde, before moving to Berlin to meet the German Chancellor, Angela Merkel, where they are likely to discuss bank recapitalisation. Incidentally, any negative news flow on bank defaults could spell doom for markets globally. Foreign institutional investors could liquidate their positions in emerging markets, including India.

Meanwhile, according to EPFR Global, dedicated BRIC (Brazil, Russia, India and China) equity funds posted outflows for the 25th consecutive week and the 38th time in 40 weeks YTD (year to date) while India, China and Brazil equity funds experienced net redemption ranging from $129 million to $174 million.

The week will also see the earnings season start in the US market, with high-profile companies, including Alcoa, JP Morgan and Google, due to report their numbers.