Broking Community Gears Up For Slide On The Bourses

The capital markets have entered a zone of uncertainty, with the broking community gearing up for a slide in the stock market indices.

The much talked about meeting between the finance minister P Chidambaram and stock exchange chiefs, fell short of expectations with the ministry non-committal at this stage regarding capital market reforms and tax reliefs.

Where does the market move then till the Budget is announced? There would be a correction around the corner and if the petro hike is announced, a slide of 100-150 points would come about.

The capital markets revival package, which has been delayed, could then be introduced later to soften the impact.

Marketmen, however, agree on one issue - if the Sensex sheds 100-200 points, it would be healthy for the markets. The trading activity remains speculative with the FII presence on the bourses still sporadic and only in select counters. In fact, the highest backwardation charges in the badla statistics during the last settlement of 41 A/96-97 are in Bajaj Auto (-Rs 2.12), MTNL (-Rs 1.94), Mahindra & Mahindra (- Rs 1.97), ACC (-Rs 2.99) and Grasim (-0.23), which are all FII favourite stocks.

In the last week, there were more buyers at these counters (both speculative and willing to take delivery). During the settlement more deliveries were taken and those who could not take delivery reversed their trade, showing a short position. Prices of these stocks are expected to open firm, a dealer at a BSE institutional brokerage firm said.

The BSE Sensex since December 10, 1996 has risen 20.14 per cent to touch 3418.62 levels at Friday's close. The Skindia GDR index is up by 29.58 per cent at 71.54 levels.

According to technical analysts, the Sensex has moved into the range (3410-3430) where the correction could come about. While the market may have discounted the petro hike to some extent, a reaction could still come about and domestic financial institutions have been advised to remain liquid to counter any fall at the markets.

By this time the VSNL GDR could come through and the markets would need to be supported when the GDR is to be priced, a source at a leading NSE brokerage firm said. The BSE president M G Damani, in his meeting on Saturday with the ministry, brought to light that fact that trading interest at the markets has improved. The positive factor has been that the overall number of scrips traded on the exchange has risen in the past month from 2,300 to 3,300 by January 9. The number of trades has also moved up as have the number of TWS users at the BSE from around 1,150 in November end to 1,350 in the first week of January.

The FIIs have preferred to adopt a wait-and-watch attitude till the Budget, by which time the fund allocations for the emerging markets would be clearly spelt out. According to sources at the global investment bank HSBC James Capel, the slowdown of the economy is disappearing. The rural income is expected to be higher and there is a clear possibility of an upturn for the markets over the next six months, Amit Ghose of HSBC James Capel said. While export levels have fallen and the oil pool deficit could be high, the factor which could make a change is the rural income which will become the driving force. The CRR cut would also aid in the liquidity at the markets.

While the medium-term perspective is strong, in the short run, the market buoyancy has only been in anticipation of the revival package/budgetary announcements.