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Downswing seen as healthy correction, but wild swings not ruled out

V V L N Sastry in Bombay

In the recent past, capital markets got heated up and stocks across the sectors zoomed up due to the Dow's upsurge. Foreign institutional investors and hedge funds had earlier found in India a destination for short-term portfolio investments, drawn in by cheap valuations at which the Indian stocks were available.

This sparked an unrealistic rally, pushing up the Bombay Stock Exchange's benchmark 30-share index Sensex 28 per cent, from 3180 level on April 28 to almost 4,200 level in the third week of May.

However, the market corrected itself today, as tension mounted in the Kargil sector of Kashmir, where the Indian Air Force launched air-strikes against Pakistani infiltrators. The downswing -- the Sensex closed at 3974, down 86 points from yesterday's close -- has brought much cheer to bear operators.

The markets over the past month have become the trader's delight. Wild fluctuations have aided in building up positions over the intra-day or intra-settlement period. Although the major indices declined today, this trend would continue in the immediate phase.

It is still early days to take a call on the border issue as the Pakistani response is not very clear. The market's run on May 27 and the days to follow would depend on that.

Until the haze clears, investors would do well to adopt a stock-specific strategy instead of a market-led strategy. Today, the market witnessed the stock-specific strategy as counters such as Reliance, SBI, Telco, Tisco, BSES fell by nearly five per cent while shares of market-favourites Reckitt & Colman, Dabur and ITC managed to remain firm.

Amongst the positive developments during the day have been the launch of PSLV-C2 and Prime Minister A B Vajpayee's statement that India is not interested in unnecessary skirmishes across the border. This has given the market some hope that things would settle down soon and that the bull operators will be back in action in the interim period.

The writer is vice-president and head of equity research and investment banking, Khandwala Securities, Bombay.

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