This week, local equity market is unlikely to settle down and relax. Short-term foreign investors will take time to regain self-confidence. Medium to long-term outlook of the emerging markets may still allure the Wall Street players, but in the immediate term, very few would hazard the risk.
But for the short covering, cash market may not look forward to a clear bounce-back in the next few days. Local biggies, who think this is the time, have not mustered the courage to go in for fresh long.
Domestic players of all hues may not ignore the fact that they want FIIs to chase Indian equities once again. A wishful wait for the foreign portfolio funds inflow to ease burden of the local currency regulation, cheaper funds for the India Inc's capital expenditure and hope for more-than-expected earnings growth are likely to torment small players in the next three to six weeks.
According to market intelligence, the Sensex consensus FY12 and FY13 earnings growth is likely to be revised downwards in the next few weeks. A consensus on the GDP growth will, perhaps, continuously get adjusted in the next eight months .
The unfolding second coming of the crisis in the developed markets will have impact on the domestic market and the economy. If the US and the EU decidedly enter a multi-year economic slowdown, India will have a mixed fortune.
It is reasonable to guess that in such a scenario global investors will have to wake up to the attractions of “high quality” Indian stocks “relatively soon”, according to major analysts. But, how soon is “relatively” soon? The benchmark index is yet to see the lowest point and this may happen in the next 45 days. Many market observers point towards the dismal outlook for economic reform and inflation in the country. But there are two elements that need to work to restore calm in the market — re-appearance of “governance” or, at least, a general perception of change in that direction and a confirmation that crude oil price is distinctly biased downward.
Significant buying is unlikely before a sharp dip, which may catch the Sensex between 15,500 and 16,100. This may create an upward move and momentum of sorts for a brief while. The next phase between November and March is likely to see return of a stable and broad range-bound movement— between 16,000 and 19,000.
Chances of seeing Indian equities among the “safer” alternative assets would only brighten when the political economy clearly signals a dented but stable 7 per cent (or thereabouts) sustainable GDP growth in the next one year.
In the period till September end, clarity on key trends will help investors in taking medium to long term call. For example, questions like whether the duty entitlement passbook scheme expiry in September 2011 will cause a sudden drop in export growth will have some answer.
A few sectors such as IT and banking may feel pressure going forward. Indication should emerge in the current quarter.