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July 2 Continues To Dictate Sentiments

The bearish undertone stood accentuated this week as unwinding of speculative positions coupled with sales from domestic institutions pulled the Sensex down.

The bearish undertone stood accentuated this week as unwinding of speculative positions coupled with sales from domestic institutions pulled down the Sensex by 62 points. The last day upsurge, which saw the bell weather index gain 38 points, was far too meagre to cover up the 285-point loss in the last seven sessions- the sharpest fall since Sebi's decision to ban deferral products.

Even as the NASDAQ ended the week with a gain of 3%, the Indian bourses were looking at their own backyard. The sentiments largely remained negative as the termination of badla system approaches. While all outstanding positions taken before May 15 can be liquidated by September 3, positions taken after May 15 will have to be compulsorily settled before July 2. However, with net outstanding post May 15 still on par to their pre May 15 level, the operators seem be largely holding on to their positions. While fresh speculative purchases are expected to ebb as July 2 nears, the combined outstanding positions are in the range of Rs 1600 to 1700 crores with most of them built around technology stocks. Apart from outstanding positions, the selling pressure from mutual fund major, Unit Trust of India ensured that any attempt of revival was nipped in the bud.

While the spurt in the NASDAQ failed to guide markets, the benign profit guidance from world's largest semiconductor maker, Intel coupled with support from FIIs, saw the Sensex break its losing streak on the last trading day. After being net sellers last week, FIIs were again on a buying binge and poured Rs 309 crores in the current week. The net investments by FIIs so far in 2001 have crossed the all-time high figure in 1996. FIIs have poured in a total of Rs 10,813 crore in a little over five months this year (till June 6) against the peak investment of Rs 10,804 crore in 1996.

The market is expected to remain lacklustre till the new regime, which demarcates cash and futures markets, ushers in on July 2. While the short-term may witness drying up of liquidity, this could offer a more stable market in the long-term, particularly as investors feel more comfortable with the system's greater effectiveness in curtailing speculative activities. Further, it remains to be seen how smoothly the market adapts to the new hedging instruments of options and futures. Initially, stock options will be available on only 30 scrips. Futures, which was launched a year back has had a rather lacklustre response, generating just a miniscule fraction of the volumes generated by the spot market.

In the immediate term, expectations of first quarter results will guide the sentiment. The market especially keenly awaits the results from technology companies since it will reflect the impact of a global slowdown, if any, on their earnings.