Expect A Range-bound Market

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p>The Indian equity market ended the year on a subdued note with the Bombay Stock Exchange (BSE) 30-share Sensitive Index (sensex) losing nearly 2 per cent during the week to end at 15,454.92. The market lost ground on low volumes following low interest among players that stayed on sidelines due to lack of positive triggers in the domestic as well as global markets. The average daily turnover during the week in the BSE cash market dipped by nearly 28 per cent to Rs 1,376 crore, compared to last week's average daily turnover of Rs 1,904 crore. For the calendar year, the Sensex lost nearly 25 per cent.<br><br>The low turnout is not surprising as most of the investors, especially foreign institutional investors (FIIs), are usually on vacation during this period of the year and return only by the first or second week of January. This is the time when they usually make fresh country-wise allocations.<br>Meanwhile, the Indian market can be expected to remain range-bound in the coming week. Though most of the bad news regarding the rising fiscal deficit of the government has already been discounted, news that government borrowing during FY2011-12 will exceed by 25 per cent is going to keep the market subdued. Next month, the government will borrow an additional Rs 27,000 crore from the market taking its total fiscal deficit for FY12 to Rs 5.1 lakh crore, compared to the budgetary estimate of Rs 4.17 lakh crore.<br><br>Going ahead, all eyes will be on the upcoming state elections, particularly Uttar Pradesh, which goes to polls on 4 February 2012. Says Amar Ambani, head of research at India Infoline, "The outcome of state elections in Uttar Pradesh could have a significant bearing on the policy decisions of UPA II, including the Union Budget. It might also change some political and strategic equations at the Centre."<br><br>One has to see whether the government gathers enough courage to implement important economic reforms. The market will keenly watch government finances, corporate results for the third quarter ended December 2011, the IIP numbers on 10 January 2012, inflation data, liquidity position in the financial system as well as rate cut expectations. This will also mean there will be volatility across markets –equity, bond and currency. Equity market may remain jittery following bond auctions in Italy and Spain starting in the first fortnight of January. These important events will underpin the markets' direction next month. Any positive will act as a trigger for the Indian market.<br><br><strong>The Week That Was</strong><br>As expected, the week started on a positive note following above than expected new homes sales in the US. Last Friday, after the close of the Indian market, US reported its sales of new homes. For the month of November, the new home sales rose to a seven-month high of 3.15 lakh, up 1.6 per cent, showing the housing market was stabilizing. This encouraged the Sensex to move up, crossing the 16,000-mark on Tuesday. Though the market couldn't hold on to its high, profit- booking at higher levels pulled the Sensex lower.&nbsp;<br><br>Reports that Indian and Mauritian tax officials have begun talks on revising the double taxation avoidance pact between the two countries also added to the market's woes. According to reports about 40 per cent of FII inflows and around 42 per cent of the foreign direct investment (FDI) in India are routed through Mauritius. Several companies take advantage of the double taxation avoidance pact between the two countries and escape paying taxes in both the countries. Concerns are if the concessions are removed, it could hamper FII flow which to large extent is the driver for the Indian equity market.&nbsp;<br><br>The fall in the Sensex was also due to the selling in frontline stocks particularly index heavyweight Reliance Industries (RIL). During the week the stock RIL lost nearly 9 per cent to touch its new 52-week low of Rs 690. On Friday, the stock ended at 692.90. The stock fell on news that the gas output from the KG-D6 gas field has declined to a new low at 38.66 million cubic meters per day. The fall in RIL also pulled down the Sensex that ended the week at 15,454.92, down 284 points from its previous week's close of 15,738.7.<br><br>Nothing much has changed in the last week. Markets don't like uncertainties and the existing domestic and global uncertainty has kept most investors on the sidelines. Though the negatives including poor third quarter results by Indian corporates as well as downgrades of European banks are discounted in the price, policy reforms by the government will be the trigger that can be expected to &nbsp;help the markets to move up. However, in a sutuation where pessimism and fear rule, there is a high probability that the market may get into a panic mood, &nbsp;further pulling it down. It could be the right time for investors to slowly start building their portfolio by sticking to blue-chip stocks.&nbsp;</p>