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No Trigger to Boost Sentiment

Uncertainty continues to haunt bourses with little to suggest an economic revival

Equities remain stranded. The absence of any trigger has ensured that prices continue to be range-bound with lackluster sentiment and poor volumes. The last one-month has seen the Sensex oscillate in a range of only 130 points. Though FII investments are still positive, there has been a perceptible slowdown. On the other hand, domestic institutions have been on a selling binge, cutting short any short-term rally.

The current week saw the bellwether Sensex lose 20 points to end below the 3300-level. While US markets are in a flux, allegation of nexus between fund managers, brokers and corporate houses continues to cast a shadow on the markets. The week saw the announcement of the proposed insolvency fund for rehabilitation of sick companies. The step is surely unwarranted since it tantamount to paying for others' inefficiency and lack of management skills.

Courtesy excessive speculations, the media stocks of Mukta Arts and Balaji Telefilms have been shifted to rolling settlement from August 20. The impressive quarterly performance coupled with a T+5 settlement encouraged rampant trading in the two stocks. However, the shift to rolling mode now is bound to impact aggregate volumes since the duo has accounted for a big chunk of the total turnover.

The lackluster trend notwithstanding, the markets had something to cheer about with the recommendations of SEBI's panel for improving liquidity. The panel has proposed introduction of stock futures and margin trading in equities. It has also favoured the entry of FIIs and banks into derivative trading with limited short sales by institutions. These steps, if implemented, are bound to deepen the markets. So far, FIIs are allowed to deal in only index futures. Among other positives, Nsscom has announced that the software industry was well on course to achieve exports of Rs 40,000 crores for the year. This augurs well for the markets, which have been plagued by concerns for the technology sector.

Outlook
Equity markets are likely to move in a narrow range in the absence of an impetus to bolster the sentiment. Uncertainty continues to be the order of the day with little to suggest an economic revival. The disinvestment process is also caught in rigmarole with BPL Communications now reviewing its bidding plans for telecom giant, VSNL. It is time the government stopped dithering on the vexed issue and took some firm steps to revive bidders' confidence in this process.

The week saw profit warnings from Dell, Hewlett Packard and Ford Motors, which triggered a massive sell-off with the Nasdaq sinking below 1900-level. With the Fed due for a seventh rate cut next week, the markets are now hoping for a 0.5 per cent reduction since the trimming exercise so far has failed to make much impact. While this may lead to a relief rally in the US, it remains to be seen whether the move pushes up domestic markets.