Market likely to see a dip

Dalal Street key indices may drift downwards this week.

The outlook for first quarter earnings, inflation and interest rate is bearish. The second quarter outlook is still uncertain. If monsoon cannot cool the frayed nerves, the bulls have to hibernate for most part of the second quarter too.

June derivatives in the beginning stand loaded with shorts, perilously close to the highest such burden. According to market insiders, long positions are increasingly being closed.

Participation of investors – local and global – continues to be negligible. Uncertainty and higher risk perception have deterred them from taking a call. Traders and punters also appear uneasy in view of rising financing cost.

Globally, analysts and strategists have turned cautious about Indian equities. Current consensus seems to suggest that a 10 per cent correction in the Indian benchmark index is in the offing. Market researchers and economists do not show overt enthusiasm.

In March at an IMF conference economist Mr Joseph Stiglitz had said: “Most people around the world feel that QE2 has led toward a flood of liquidity, which has not helped the country that needs liquidity, which is the United States, but rather has caused enormous disturbances in other parts of the world — booming emerging markets, which are not in need of additional liquidity.”

That was a reality then. Now, the situation has changed for emerging markets.

India, like a few others, has been forced to usher in a quantitative tightening phase to mop up excess liquidity from the banking system. Worries over inflation have caused growth prospects to dim somewhat.

In developed economies, credit growth is still dragging along at extremely low levels. And even though loan growth in China has fallen since the beginning of the year, credit growth appears to remain strong in some other emerging markets.

According to Morgan Stanley researchers, credit growth is now creating more confusion. Investors are already uncertain about the growth outlook. For India, credit growth is perceived to be still relatively strong, though moderated from its peak.