The Telegraph
Since 1st March, 1999
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Guessing game on sensex swing

Mumbai, June 13: The Cassandras predicting a sensex slump to 7000 may have to wait. Analysts do not expect the bellwether index to reach such desperate depths despite the savage correction, though bouts of anguish may just be round the corner.

Few are hazarding a guess on the sensex by the end of this month, though most have painted a bleak picture of the next few sessions.

“The markets have breached the key psychological mark of 9000. I see the sensex touching 8500 this week itself. We may see some support coming at this level,” said Dilip Davda, an equity analyst. He said weak signals from overseas, particularly Asia, were likely to keep investors away from the markets.

Andrew Holland of DSP Merrill Lynch, who was gung-ho about equities a few months back, sees a period of greater volatility. “The Indian markets will continue to remain volatile along with the rest of the global markets,” he added.

It was Nomura International that first sounded the warning gong. Its May 22 report derived a fair value of 7000 for the sensex and recommended a switch to the Taiwan market.

Analysts Winnie Ma, Sean Darby and Kenneth Chan said the liquidity problems were far from over and investors were underestimating the impact of the unwinding in open futures.

Morgan Stanley too was bearish on liquidity. Its fears were not off the mark as analysts said the latest crash was a result of liquidity getting scarce.

However, the market has taken heart from the sell-off trend. In a three-stage process, FIIs were first to sell equity, followed by mutual funds and high net-worth individuals.

Arun Kejriwal of KRIS said the sensex would not hit 6000-7000 because the big players have already liquidated their portfolios, anticipating a fall.

“The FIIs were selling earlier and it has now stopped. Later, it was the mutual funds who were selling and it too has stopped. Now it is only the portfolio management services section who are selling. This will also stop. Therefore, all the selling has nearly been over. The worst is more or less done. May be, the markets will correct another 500 points from this level, but it will consolidate later,” he added.

The other catalyst of the crash was fears of a possible hike in Fed rates. The dust will settle down within a fortnight when the Fed will deliberate on the rates. “An interest rate hike is more or less expected. The markets may stage a turnaround after that,” an analyst said.

Though the progress of monsoon has not been satisfactory so far, there are still many causes for cheer. For instance, key segments of the economy are doing well. The data released yesterday showed industry clocking a growth rate of 9.5 per cent in April, up from 8.1 per cent a year ago. Moreover, FIIs are not the sole determinants of the market's course. Mutual funds too have begun to play a key role.

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