Cautious markets await D-Day

But what is worrying market pundits is the outflow of foreign funds. Foreign institutional investors (FIIs) have pulled out Rs 1,250 crore in the last six trading sessions, the biggest FII net outflow at a stretch at least in the last 18 months. In the last three trading sessions, the FIIs sold net equity worth Rs 1,167 crore.

During the same period, the benchmark 30-share Sensex lost 432 points or 7.5 per cent.

Says CEO of Tata Asset Management Company, V P Chaturvedi, “I think the market should stabilise in the next three months. For a long-term investor, this is the right time to enter the market, but in the shorter term, I will suggest that investors should be more careful.”

“FIIs being net sellers in the last two or three trading sessions, should be be a major cause of worry in the market. Though the figure of net sales looks large on a standalone basis, it is barely a fraction of their net purchases in the last quarter. The current selling is being generated mostly by the hedge funds who are typically known to time the markets,” said Sandeep Dasgupta, CEO, Deutsche Mutual Fund.

Adds Nimesh Kampani, CMD, JM Morgan Stanley, “I see business is as usual. It was the Congress which first kicked off the reforms process in the country.”

Bargain hunting in select blue chips lifted the Indian market higher on Wednesday after the last three sessions’ weakness.

However, the undertone of the market remained cautious ahead of the crucial vote-counting on Thursday. After early volatility, the 30-share BSE Sensitive Index (Sensex) eventually ended with a modest gain of 32.45 points at 5,358.35.

The benchmark index had lost 230 points – its biggest fall in nearly 4 years – on Tuesday after the Telugu Desam Party, a key ally of the National Democratic Alliance (NDA), lost to the Congress Party in the assembly elections in Andhra Pradesh. The ouster of TDP is being seen as an indication of general election results. The NSE S & P CNX Nifty Index gained 11.65 points to end at 1,711.10.

Dealers fear that if the ruling NDA coalition is unable to muster enough majority, then there could be a prospect of a hung Parliament. In such a situation, the market may fall close to 5,000-mark, feels a section of the market.

“The market displayed some strength on Wednesday on selective bargain hunting after recent fall. The undertone of the market still appeared to be cautious amid fears of a hung Parliament or a weak coalition ahead of Thursday’s vote-counting,” said BSE dealer Pawan Dharnidharka.

Apart from the political uncertainty, other factors like fears of an imminent hike in the US interest rates, rising oil prices and proposed slowing down of the Chinese economy may also continue to affect the sentiment in the short-run.

FIIs put $ 27 bn in India

After bringing nearly $7 billion in 2003, FIIs had invested $4.33 billion in Indian market in 2004 so far. FIIs have invested $ 27.2 billion in India ever since the Indian markets were opened up in 1993. This is considered as “hot money” as it can be pulled out any time.