This week has been a curious one. After all the volatility of the last fortnight, the market has gone completely limp. Total traded quantity in the last couple of days, both exchanges put together, have been around 40,000 crores, 30 per cent lower than the previous averages. This, more than any price movement, is reflective of the lack of conviction on the street today.
It’s almost like a car driving slowly on a road with many bends: The driver is always unsure of what lies beyond the next bend and whether there is another vehicle rushing down the other way.
What is also making investors apprehensive is the prospect of large-scale withdrawal of FII money, if the US problem deepens. So far, we haven’t seen much by way of outflows.
Since July 27, when it all started, FIIs have sold around $1 billion of stock in the cash market. Now, this may seem large but seen in the context of the record inflows we saw in July, this isn’t significant.
Particularly so, because domestic institutional investors bought almost an equivalent amount during the period. This has cushioned the fall to a large extent. Also, India has fared much better on the liquidity front, relatively; Taiwan has seen outflows of $4.5 billion since the correction started.
This lacklustre phase isn’t expected to last very long either. There’s just too much underlying nervous tension. If more bad news follows, volatility will spike again. In the absence of it, there’s a reasonable chance that the market will attempt a comeback. After all, this hasn’t been a debilitating fall like the May 2006 carnage. But there are many IFs out there; sadly that’s how the market is positioned: Just too many IFs.
(The writer is Executive Editor, CNBC-TV 18)