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BW Businessworld

Market In A Deer Phase

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With most of the bad news getting discounted, the Indian market continues to remain in a deer phase – neither bearish nor bullish, rather flat. Over the past one month, the sensex has moved in a narrow range  with spurts of volatility on news from the US and Euro-zone as well as home inflation and IIP numbers.

Last week the market drifted lower, losing 2 per cent on lower than expected IIP numbers and on continued concerns on Europe with Italy being the new focus area. On the other hand, late on Friday, the US market climbed on hopes that Greece and Italy are moving in the right direction and leaders in both nations are taking the right measures to curb the regions ongoing debt crisis. This saw the Dow Jones Industrial Average Index (Dow) gain 2.2 per cent on Friday helping the Dow to end the week higher at 1.4 per cent.

Says Amar Ambani, head of research at India Infoline, "In the coming week, monthly inflation figures would play an important role in setting the direction. It would be advisable to stay stock specific." Though next week the focus for the market will be on Euro-zone and the WPI inflation data for October, players will slowly build-up position ahead of the winter session of Parliament that starts on 22 November 2011. Players expect government to announce some reform measures to boost investments in the country.

Last week, the Bombay Stock Exchange (BSE) Sensitive Index (Sensex) drifted lower on poor IIP numbers. The IIP for September came at 1.9 per cent, much below market estimates of 3.6 per cent. On a year-on-year basis, the mining and capital goods index reported a contraction of nearly 6 per cent and 7 per cent, respectively, whereas manufacturing grew by 2.1 per cent. The weak IIP data reflects the impact of the monetary tightening measures adopted in the past. It is the second consecutive week that the Sensex has ended in red. For the week ending 11 November 2011, the Sensexed end at 17,192.82, down 2.1 per cent or 369.79 points.

Since 28 October 2011, the Sensex has lost 612 points.

The government spending has come to a standstill which is clearly visible from the economic and industrial data. This has put serious concern over the growth of the country. Already the National Council of Applied Economic Research (NCAER) has reduced its projected average GDP growth for the current fiscal to 7.9 per cent, down from 8.3 per cent in April 2011. If markets have s to move up sustainably, progress on reforms and investments is a pre-requisite and any positive news on that front will be the next big trigger for the Indian market.

Though no bad news from Europe can be good news, it will not act as a trigger for our markets. The European crisis is not going anywhere in a hurry. Many of the nations are facing depression though not recession. Fiscal challenges will be solved eventually, but the underlying fear of banking sector contagion will continue to pose threats. A lot of work needs to be done as it's a structural problem that will require multi-year of restructuring.

At home, the government stand is clear that it wants to contain inflation that is hovering close to 10 per cent and food inflation close to 12 per cent. But if India has to move to a new level of growth, it will require renewing the momentum of reforms and will have to find other measures to capture inflation. Slowing growth and rising inflation will be double whammy.

In such circumstances investors will be better off accumulating stocks of quality companies which otherwise they weren't able to pick in a bull-run.