Global cues to decide fate of ‘technical rebound’

Bears May Use Upside To Take Fresh Short Positions, Feel Analysts

INVESTORS are doubtful about the endurance of the new-found strength in Indian equities, with concerns over the global and domestic economy still in the air. With the wider consensus being that last week's rally was a technical rebound after a stretch of weakness, investors are watching for cues in global markets that could indicate a possible reversal.
    "We may see a 1000-point rally over the next few days and all that will be erased in over two days," said Sandeep Shenoy, strategist at Mumbai-based broking house PINC. "Nothing has changed much, globally or on the domestic front," he said.
    In the shortened trading week to March 13, equity benchmarks rose over 5% from the week before that, talked up by comments from top financial institutions — including Bank of America, Citigroup, JP Morgan, that their performance has improved.
    Bears are likely to see this upside as an opportunity to initiate fresh short positions, as rallies — in the last year or so, have fizzled out at the slightest of negative developments, either at the global level or back home. Market participants said many foreign institutions would not want the Nifty to rise beyond 3800-3900, as a lot of short positions have been created around these levels. The Nifty on Friday closed at 2719.
    Bulls are taking heart at the renewed buying interest by foreign institutional investors, who net bought shares worth Rs 300 crore on Friday, according to provisional figures. Many long-only funds — funds that follow the strategy of buying shares and holding on for a reasonable period of time to generate profits — are said to be facing redemption pressure in their home markets. On Friday, US markets showed signs of the week's bullish streak fizzling out, though they managed to end strong in choppy trade. If indications in the US are to go by, domestic markets on Monday could see some volatility or even profit sales.
    This week, investors will await the outcome of Federal Reserve's two-day policy meeting, starting Tuesday. Market observers say further rate cuts are unlikely, but comments by the US central bank will be closely watched. Any announcement by the US Fed that it would resort to more unconventional methods to restore confidence in the economy would be a positive signal for the market.
    Back home, the biggest trigger for the market, either side, over the next couple of months will be the outcome of the general election scheduled in April and May. "A reform-minded stable government could mean that the market starts looking at a strong earnings recovery in FY11 and a 30% rally from current levels (8500 on Sensex)," said Nilesh Jasani, analyst at Credit Suisse in a report.
    nishanth.vasudevan@timesgroup.com