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Shaky Alignment with Global Trading Standards

With first quarter results round the corner and Nasdaq precariously poised above the 2000-mark, the outlook is uncertain.

It was a rather shaky alignment of Indian bourses with global trading standards this week. Apart from an anticipated sharp drop in volumes in the absence of speculative trades, the new dispensation of rolling settlement faced some teething troubles. The US-64 fiasco worsened the sentiment while a falling Nasdaq spelt more bad news for the technology stocks. Thus, the bellwether 30-stock Sensex lost a hefty 4.4% or 151 points during the week including a 113-point loss on Tuesday as UTI tremors jolted the bourses. There were fears that UTI would offload its bluechip holdings to tide over its liquidity crisis. Amidst all the noise however, FIIs continued to accumulate stocks at lower levels and pumped another Rs 119 crore during the week. The net equity investment for the current calendar is now a staggering Rs 11,856 crore and is largely responsible for a steady rupee.

While combined turnover on NSE and BSE dropped by nearly 40% to Rs 1400 crore in the beginning, it did show a healthy improvement in the remaining trading sessions with an average of over Rs 2,000 crore. The absence of circuit filters on select stocks encouraged rogue trades, abnormal price movements and suspension of trading on bourses. Thus, ACC was traded at Re 1 on Monday while Reliance Petro and ACC pulled up Nifty by a whopping 40% or 427 points later in the week. However, the regulator quickly stepped in to correct the anomaly. Apart from a stern warning against punching of absurd prices, the exchanges imposed a dummy circuit of 25% on 53 stocks with no circuit filter. If an order now is higher or lower by 25% over the last closing price, it will be frozen by the exchange and not enter the system.

On the other hand, the slide in the US markets continues with the onset of yet another "confession season" as technology heavyweights horribly underperform Wall Street's earning estimates. There are doubts now whether the US economy will rebound by year's end. For the first time since 1992, the number of people on unemployment rolls has passed the 3 million-mark.

Outlook
The fire fighting by the finance ministry to redeem UTI with banks pledging liquidity support should give a reprieve to equity markets. It is unlikely that the government will allow UTI to sell in a shallow and bearish market and further destroy shareholders' wealth. Further, the government is finally moving on the divestment front and plans to go ahead with sale of Air India to the Tata-SIA consortium. However, the sell-off of Indian Airlines hit an air pocket as the bidders were disqualified.

Going forward, the market movement would be guided by first quarter results that start to trickle in from next week. Else, there are no short-term triggers for the equity markets. With Nasdaq just a shade above 2000 barrier, any unpleasant Q1 surprises from domestic tech companies could further maul technology counters. The interest in option trading is yet to pick up with FIIs waiting for necessary regulatory approvals from RBI. The regulator should give the go-ahead in right earnest since FIIs have the necessary experience and are well equipped to participate in options trading. This would help develop volumes and speculative interest in the markets.