Markets In A State Of Flux

While the Sensex's movement may suggest a lacklustre market, it was an eventful week after a long time with some moderate activity taking place.

The last week saw an inflow of around Rs 660 crore from foreign institutional investors(FIIs). However, the markets are in a state of flux and confusion in spite of positive FII inflows. The market after a long time witnessed a period where net FII investment was positive every day of the week.

The FIIs seem to be using the depreciation in the rupee to slowly bring in their money as the downside from current levels seem limited. A normal depreciation of about 8-10 percent per annum in the value of the rupee vis-_-vis the dollar is already factored in by most FIIs before making investment decisions. The rupee touched a new low of 46.07 to a dollar last Friday before recovering to close at 45.79.

 

Last week, fund buying in Infuses Technologies Ltd and Himachal Futuristic Communications Ltd led a short mid-week rally. However the gyrations in the rupee movement vis-_-vis the dollar, dampened sentiment and unnerved the bulls, making the rally short lived.

The market seems to be ignoring all signs of positive activity and giving greater focus to factors which are bearish in nature, apparently a classic bear market syndrome.

The Prime Minister finally seems to be making an effort to get his government's act in order. However more needs to be done and seen to be done rather than just talked about on the disinvestment front.

Until then markets are likely to remain skeptical of the intentions expressed by the government on this burning issue which can in fact no longer be ignored. For any long term sustained rally in the market, more needs to be done on the divestment front and the course and time frame of second-generation reforms needs to be clearly spelt out.

While the market may be lacking direction, it would not be a bad idea for investors to selectively start picking up quality stocks, according to analysts.

Although a few funds have started selective buying, a larger section of institutional players who are sitting on the sidelines seem to be keeping one eye on the rupee before entering the fray, says a prominent dealer. Before the rupee shows signs of stabilising , FIIs would hesitate to make large commitments, he said.

Technically, the next support level for the market is at 4060. If that is breached then the Sensex may slip another hundred points or so. On the upside, 4375 is a crucial resistance level and this level needs to be breached for the market to continue its upward journey.

In summation, it would be advisable for investors to slowly start buying into the market specifically in frontline technology stocks and then of course hope that the PM and his colleagues deliver on their promises.