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Brace for volatility, utilise opportunity

Ambareesh Baliga & Reuters 

After a 21 per cent run so far this year due to unabated liquidity flow, paused for two weeks in a row, with a cut of close to five per cent. Data showing a slowdown in gross domestic product (GDP) growth in the third quarter spooked investors, while macroeconomic worries arising from high oil prices also weighed on sentiments.

Foreign institutional investors’ (FII) flow continued unabated with $5 billion, in February and $7 bn so far this year. Domestic institutional investors continue their selling spree, with a net sell figure of $2.4 bn in February and $3.8 bn YTD.

The European Central Bank (ECB) announced euro 530 bn in the second Long-Term Refinancing Operation (LTRO) operation, marginally higher than expected and compared with a euro 489-bn figure last time. However, there are still fears that the Greek crisis has still not been resolved and there will eventually be a Euro exit as we have been indicating in the past.

Back home, the five per cent government stake sale through the ONGC auction route scraped through with Life Insurance Corporation of India (LIC) moving in at the last minute to save the day for the government. There were debates on whether the floor price was on the higher side. As a result, a large number of FIIs and mutual funds did not participate in the bidding. The decision makers needed to look at the market reality than pure mathematics. Any issuer should always pay heed to the reference price (which is the market quote) and give a suitable discount, irrespective of the fundamentals. The ground rule of the market — “the market price captures the current value of the stock” — seems to have been forgotten by decision makers. No investor (other than strategic), whether an institutional one or retail, would pay a premium, especially when it’s not a scarce commodity. The government has to take this into account while strategising future divestments with regard to pricing.

this week are expected to remain volatile, with three big events lined up over the next fortnight — Uttar Pradesh election results on March 6, RBI credit policy on March 15 and the Union Budget on March 16.

The stock have to some extent build on a SP-Congress alliance; but in case they stick to their pre-poll stand of not forging a partnership, there also remains a possibility of a hung house with SP as the largest party. Hence, we could have a scenario of President’s rule.

On Monday, markets are expected to react to the exit polls ahead of the actual results on Tuesday. With the Nifty still moving in the 5,300-5,400 range, the poll results may help break the same. Post this, we will see the budget and monetary policy expectations coming to the fore. In all, the markets are in for volatility and it should be utilised to one’s advantage. I would suggest buying selectively in case we see a sudden drop to 5200 levels or below.

Alternatively, in case we see a sudden spike due to positive election results, book out at levels above 5,500, as they may not sustain due to budget fears, which may cap the gains.

The views expressed in this column are the author’s own and do not represent those of Reuters

First Published: Mon, March 05 2012. 00:50 IST