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What will impact the market?

The Money Bureau

The last week was bad for all equity investors with panic gripping Dalal Street as they emerged scared and hurt. Greed seems dead now and fear overpowers all sentiment. How will the market behave in the next few weeks? Here are some things that will provide short-term direction.

1) Corporate results

The 'results season' starts tomorrow when two big daddies, Infosys and Satyam, announce their results. Analysts expect a bottomline growth of about 70 per cent in leading software companies. Any divergence from this will see buying or selling depending on the numbers.

2) Portfolio rebalancing: Shift to manufacturing

Both large and small investors have seen what volatility can do to tech stocks when valuations are stretched. There will be a tendency to convert some tech holdings over the next few weeks into the better performing manufacturing companies as many of these companies are expected to do well this year. See Reality Check.

3) The NASDAQ connection

Events in the US are increasingly affecting our markets, so the direction there will drive our markets to some extent. Moreover, there are many Indian companies like Zee, Dr Reddy's and Nicholas Piramal planning to list in the US. The appetite for these companies and the pricing depends on the mood there.

4) The behaviour of foreign institutional investors

The total FII investment in the country stands at $ 11.4 billion and they have invested $1.2 billion in 2000. Most of their investments are in the top 100 stocks. If they stop buying, the market rise will be stanched. They are big sentiment-drivers and there are enough small players just piggybacking FIIs. FII investments, in turn, depend on the global asset allocation and their fund flow. If they face redemptions, they will have to sell stocks.

5) Profit-taking at higher levels

The shock of last week has scared investors. They have realised that greed is not good. At every higher level, there will be sales. Thus, a runaway bull market like January and February looks difficult.

6) The government

At least, the FII vs Income Tax issue is resolved. The government can be a sentiment-driver if it takes divestment more seriously.

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