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'Market to remain under a tight bear hug'

Dalal Street is likely to face another turbulent period this week amid inflationary concerns, negative global cues and fears of political uncertainty in the country.

business Updated: Jun 22, 2008 15:20 IST

Dalal Street is likely to face another turbulent period this week amid inflationary concerns, negative global cues and fears of political uncertainty in the country, analysts say.

Market analysts believe that the surge in inflation to a 13-year high of 11.05 per cent could lead to a sharp selling bout at the bourses this week which could propel the benchmark index into a downward frenzy.

"With inflation hitting double-digit mark on Friday, investors will get enough time over the weekend to think and are most definitely going to be on a selling spree this week....Be prepared for what I call a 'pre-meditated murder' on Monday," Arun Kejriwal director of Kejriwal Research and Investment Services (KRIS) said.

The benchmark index Sensex which had closed at its lowest level in 2008 at 14,571.29 on Friday, lost over 800 points during the week. Besides, the 50-share Nifty index had settled down 156 points at 4,347.55 on the National Stock Exchange.

Economists believe that it is unlikely that inflation would fall below the 8 per cent level till this year end.

"While 11 per cent headline WPI number were unexpectedly high, the market was well aware that inflation in June is likely to trend upwards and remain high for several weeks.

"A correction in global commodity prices as well as a good monsoon could bring relief over the next quarter, we do not expect inflation to fall too far below 8 per cent until end December," Reliance Capital Chief Economist Atsi Sheth said.

Monetary tightening as well as sporadic fiscal measures are likely to be announced over the coming weeks. It is important to remember that inflation currently is a global concern and that there is no magic bullet to deal with it, Sheth added.

The quarterly monetary policy review of RBI is scheduled on July 29, but analysts said that the Central Bank is expected to take a call much earlier with inflation hitting the roof.

Reserve Bank of India had on June 11, hiked repo rate by 25 basis points to 8 per cent with immediate effect in an effort to contain rising inflation.

However, concerns remain that a further hike in rates would impact bottom line of Indian companies, while high interest rates may delay expansion plans of corporates, which in turn may impact future earnings growth.

Besides, analysts said that the sustained selling by foreign funds would further weigh heavily on the sentiment of the investors in the near term.

"Inflationary concerns and negative cues from the world markets are likely to keep the bourses under pressure this week. However, we expect some support to come in at lower levels by the middle of the week," domestic brokerage firm SMC Global Vice President Rajesh Jain said.

Foreign Institutional Investors have been a net sellers in equities to the tune of Rs 7,125.20 crore so far in June, while in the 2008 till now they have made sales worth Rs 22,494.60 crore.

However, domestic mutual funds were net buyers of shares to the tune of Rs 1,919.90 crore in June so far.

Meanwhile, expectations of good first quarter results may trigger a recovery from lower level after the steep fall in share prices, marketmen said.