Investors eye Bearish market with hope

Shooting international crude oil prices, inflation drives market dip

Shooting international crude oil prices, inflation drives market dip

As markets had a free fall yesterday due to relentless selling pressure, the BSE Sensex fell below the 18,000 mark during the intraday trade, for the first time since August 31, 2010.

Though the Sensex recovered to 18,022 points after falling 306 points earlier, investor sentiment has clearly turned bearish.



According to market sources, small investors have lost money and the question on everybody's mind is how will the market behave today.

"After falling so much, I expect some sort of a bounce. But this uptrend will be shortlived and there are several reasons for that such as inflation and increase in international crude oil prices.

I do not subscribe to the theory that the Egyptian unrest has contributed to the crude oil price touching $100 per barrel.

However, crude prices will surely have a big impact on inflation and it is bound to affect RBI's credit policy as well as the government's fuel policy.
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The RBI will be left with no other option, but to tighten liquidity, because inflation has begun pinching even the lower middle class and the upper middle class.

I also see slim chance of any pre-budget rally," said SMC Capitals Ltd's strategist and head of research Jagannadham Thunuguntla.

"I expect the Sensex to go down further this year. We must also realise that there has been only a 15 per cent profit growth, which isu00a0 modest.

All these factors will continue to exert downward pressure on the market," he added.

Other analysts who spoke to MiD DAY on condition of anonymity said they would not be surprised even if the markets fall to the 15,000 level.
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"It's not as if I have suddenly turned bearish overnight.

There are several factors affecting investor sentiment. Markets outside India have been attractive for some time now and it is not surprising to see FIIs selling and routing their funds to these markets," an analyst said.

Other analysts too were of the opinion that whatever happens on the policy front is likely to affect markets for sometime.

"At the moment, there is lack of clarity on just about everything. But there seems to be some indication that the government might have an ace up its sleeve.
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Due to Supreme Court pressure, if the government agrees to a joint parliamentary committee (JPC) probe into the telecom scam, it will be positive signal.
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If the government also agrees to put in place an amnesty scheme to those who declare and bring in black money stashed in Swiss banks, the market will react positively, especially if the money is invested in infrastructure bonds," said expert Arun Kejriwal.

According to him, even if the government gets 10 per cent of the money through an amnesty scheme, it will help boost market sentiment.

"Typically, the government could ask those bringing in the money to pay nominal tax on it along with a penalty. This could be adjusted against the principal amount for five years, after deduction of interest and penalty.
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If the government allows such money to be invested in infrastructure, the Sensex could even climb to 23,000 points."

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