Politics, policy set to rule market mood

The line-up of events for the week promises to keep the stock markets volatile and traders on tenterhooks, reports MC Vaijayanthi.

The line-up of events for the week promises to keep the stock markets volatile and traders on tenterhooks. Global cues too are negative as Wall Street closed the week with over four per cent losses, most of it on Friday when it lost 366 points. The Sensex snapped a nine-week rally to close at 17, 559.98, a loss of 4.6 per cent. FII inflows turned negative on October 17, first time in the month, especially since the US Federal Reserve cut interest rates on September 18.

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On Monday, there is a scheduled meeting between the UPA government and its Left allies. The Left has now taken on its agenda, the stock market crash, and has asked for a complete ban on participatory notes (PN), the instrument through which unknown overseas investors buy stocks through registered foreign institutional investors (FIIs) in India.

On the positive side, market is looking forward to a statement from SEBI chief M Damodaran on PN curbs, before SEBI board takes a final decision on the proposals on October 25. “The finance minister’s speech in New York last week has given us some hope of relaxations in the proposal. But at the same time there is also a feeling such a relaxation is not possible under the current economic situation,” said a senior research analyst.

Stockbrokers also expect the spate of bulk deals witnessed on Friday to continue as clients of FIIs holding PNs sell shares ahead of the PN proposal becoming a law. The trend so far as been comfortable as offloading of the shares has been among FIIs. It is still prudent to keep a watch on all the stocks where FII holding is heavy.

Derivatives settlement is due this Thursday, adding to the volatility. “It has become very difficult to manage day-to-day affairs of the brokerage. Collection of additional volatility margins and mark-to-market margins are taking up most of our time,” lamented a member of the National Stock Exchange.

The situation is not likely to be any different this week and caution sign is on, till things clear up on the PN front and also till October 30, when the Reserve Bank of India is due to announce its half-yearly credit policy and the beginning of US Fed meeting.