For months now, pundits have been expecting the stock market to tank. And, if only to prove them wrong, the BSE Sensex has defied these predictions and hovered around the 14,000-mark for the last few months.
Says Gurunath Mudlapur, Managing Director, Atherstone Institute of Research, a research and investment banking institution: "The market doesn't work on anyone's wishes. If it did, there wouldn't be a need for fund managers and professionals. The biggest problem in the market today is that the perceived risk is greater than the actual risk."
Barring the week starting June 4, 2007, when the BSE Sensex declined in four out of the five trading sessions to end the week with a loss of 507 points, or 3.61 per cent, at 14,063.81, it has been gaining ground.
Prior to that, the Sensex was on a three-week winning streak, gaining 775 points or 5.6 per cent between May 11 and June 1. FIIs pumped in over Rs 5,000 crore during this period.
Says Shriram Iyer, Head (Research), Edelweiss, a broking firm: "The steady fall in the inflation rate in recent weeks from its peak of over 6 per cent (for the week ended April 28) to more moderate levels (it is currently at under 5 per cent) has been driving the Sensex. Also, unlike in the past, when prices fell in the period leading up to large IPOs-as investors cashed out in order to subscribe to the new issue(s)-this time, they are holding up well."
The market is expected to remain weak in the short-term. "We aren't going to see a runaway rise or a major fall. The Sensex is trading at a p-e multiple of 17-18, which is a fair value," says Avinash Gorakshakar, VP (Research), Reliance Money, who feels the mild correction during the week starting June 4 was healthy. Vidur Pendharkar, Head (Technical Research), Religare Securities, goes a step further. "The trend line has changed; in the short-term, we expect some panic in the market. If the index doesn't find support at 14,046 levels, it can fall to 13,500."
Meanwhile, according to technical analysts at Motilal Oswal: "On the upper side, the Sensex is likely to enter the resistance zone if it crosses its all-time high of 14,723. Profit booking may be seen at this level and 15,000 will be a huge psychological barrier."
However, with huge cash waiting on the sidelines to come into the equity market from FIIs and mutual funds, experts don't see the market going below 13,500 levels in the near term. Mutual funds like JP Morgan and SBI Infrastructure have already garnered over Rs 2,000 crore from their respective NFOs and HDFC AMC is also on the verge of closing its NFO.
Asked to identify winners and losers, Mudlapur says: "The appreciating rupee and lower inflation will benefit sectors like construction, capital goods, engineering and consumer durables the most." And sectors like auto and auto components, cement and textiles are expected to underperform in the short to medium term. Says Iyer: "Going ahead, any surprises in the June quarter results will be the next trigger for the Sensex."
For now, the bellwether index is expected to continue moving sideways.
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