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Clawback clue in stock shock

Mumbai, April 2: Battle-scarred investors were shell-shocked by the ferocity of today’s 617-point crash in the sensex — but they recovered some of their sangfroid after a tumultuous trading session with many of them pinning their hopes on a steady flow of robust numbers from April 13 when IT giant Infosys kicks off the earnings season.

The market’s confidence had ebbed alarmingly as stocks went into a tailspin with the opening fall.

“There was no recovery during the intra-day session today. Therefore, there is a possibility of short-covering happening tomorrow which could lead to a small pull-back,” said Harendar Kumar, head of research at ICICI Direct.

Although Kumar expected the markets to tread on weak territory over the short run, he was optimistic about the prospects of Indian equities during the course of this year. “Our sensex target for the end of this year is 16,500 to 16,700,” he added.

Technical experts point out that tomorrow’s trading is crucial and it is important that the support of 12,315 is not broken. It is feared that if this level is breached, the BSE sensex could tumble to 11,500 level.

Significantly for the markets, today’s fall comes only few days ahead of the commencement of earnings period. Infosys will be first major corporate house to announce its fourth-quarter earnings for the period ended March 31. It is largely felt that the direction of equity markets in the short run will be determined by the numbers posted by India Inc.

Although the Bangalore-based IT services major is known for its conservative projections, there are other apprehensions this time around. “The appreciation of the rupee during the last quarter of 2006-07 is a worrying factor. One not only has to see how Infosys fares, but also the guidance it gives. If the guidance for the new fiscal is lower than the market’s consensus estimates, it could be very bad for the markets as a whole,” said an analyst.

A JM Morgan Stanley report on Infosys — that sees the significant rupee appreciation as the only major risk — says that there could be some “significant nervousness among investors in the run-up to the results and Infosys’s guidance.”

Some experts feel that even if Infosys were to disappoint investors, the outlook for equity markets over the second half of this year is positive.

“By that time, we should not only see interest rates having peaked out, but the Reserve Bank of India (RBI) also putting an end to its tight money policy. The equity markets should then look up again,” said an equity analyst.

Oil prices

World oil prices today rose, trading at seven-month highs above $68 a barrel in London, on supply concerns caused by the Britain-Iran sailor crisis, traders said. In London, the price of brent North Sea crude for May rose 48 cents to $68.58 in electronic trading.

New York’s main oil futures contract, light sweet crude for delivery in May, gained one cent to $65.88 in electronic deals before the official open of the US market.

“Prices have surged in recent days as relations between Iran and the West have deteriorated,” Michael Savies, an analyst at UK-based brokerage Sucden, said.

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