Indian bears rule the roost

IndiaÆs stock market witnessed another day of ups and downs yesterday (May 24). The Sensex opened strong rising 1% to 10,938 following gains in Japan, South Korea and Taiwan. In the morningÆs trading ICICI Bank gained 6% and Bharti Tele-ventures gained 4%. Cement, metal, banking and pharmaceuticals all saw bullish sentiment. However, celebrations were premature as profit-taking followed. Although the movements were nothing like as dramatic as those which had caused regulators to suspend trading on Monday the Sensex closed weak again around 10,500 levels. Market participants interviewed for this article were predicting a difficult day today (May 25). This was on account of it being the date for expiry of the May futures and options. The F&O segment for June is trading at a 60 point discount to May which perhaps captures well the bearish sentiment still prevailing in the Indian market.

IndiaÆs Finance Minister, Chidambaram, is û not surprisingly - continuing to send positive messages. In the parliament he said that ôIndiaÆs growth story remains intactö further commenting that ôcalm and orderö have returned to the markets. Foreign Institutional Investors (ôFIIsö) are also trying to quell the panic. In a Market View note issued by Franklin Templeton Investments (which manages $4.4 billion in India for around 1.3 million investors) commented: ôInvestors with a long term horizon have nothing to worry given the strong fundamentals on the economic and corporate fronts.ö In its 'Market Comments' email of the same date India Capital Fund agrees that the India story in the ôlong term looks good û and now itÆs cheaperö.

The question which warrants asking is, what currently constitutes long term? Certainly the market participants we spoke to believe that the Sensex could be range bound around 10,000 for the course of the year û especially if global conditions remain a worry.

It has also been observed that FIIs are still selling. As witnessed last week, large volumes are being seen across categories of shares. Among the largest traded shares yesterday were IndiaÆs two Fortune 500 companies, ONGC which lost 5% and Reliance Industries which was down 3%.

An interesting aspect to consider is that many funds, both domestic and other, raised money in the first quarter of 2006. As investment opportunities at prevailing high levels were scarce, some of these funds are still sitting on cash. Some of these funds are buying although quantities are small. Hence, the general expectation is that the market is unlikely to witness another 10% crash like it did on Monday. The consensus view is the next correction could be more calibrated - with funds turning buyers in specific stocks where opportunities to add value stocks present themselves.

Amidst all the gloom, a medium-sized pharmaceutical player Unichem Laboratories managed to execute a block deal for 1 million shares. This represents just under 3% of Unichem's equity base. The deal was concluded at Rs270 per share, priced at near about prevailing price levels of the scrip. It is not known who the investors are û and certainly Unichem would have been in discussion with them far prior to the crash. The success of the placement was no doubt aided by financial results for fiscal 2005-06 announced by Unichem (on May 20) showing a more than 80% increase over the previous year. The share price reacted favourably to the news and firmed up to Rs284 after the announcement. It seems sentiment still sways the Indian market û at least in small measure.