Mumbai: Dalal Street is likely to see high volatility in the days ahead as the unrest in the global markets may put pressure on investor sentiments, say analysts.
Discounting other factors, they said, the only thing that can impact the uptrend in domestic markets is the concern over the credit market crisis globally.
“Global turmoil is aggravating and it might keep the domestic markets under pressure. A panic situation in the markets can be created by the global scenario as even after the cut in the interest rates by the US Federal Reserve the markets have not been able to stabilise,” SMC Global vice president Rajesh Jain said.
The Bombay Stock Exchange benchmark Sensex fell 73 points and closed at 20,030.83 points on Friday, 14 December, after touching an intra-day high of 20,171.57 and a low of 19,936.49 points.
There are visible signs the market might turn volatile in the coming week. Selling by foreign institutional investors (FIIs) may continue in the near term as they resort to year-end profit taking, marketmen said.
FIIs have made investments of Rs5,655.60 crore so far in December, while the total for 2007 stands at Rs71,562.90 crore, the latest data available on the Sebi website show.
“Indian markets have proved to be the strongest in the world till now, but how far they would be not be affected by the global turmoil needs to be seen,” Jain said.
Analysts, however, expect small and mid-cap stocks to continue their upward rally on momentum buying, as displayed by strong market breadth in the past few days.
The BSE Small-Cap index surged 853.23 points to 12,195.50 while, the Mid-Cap index rose 449.98 points to 9,471.94 in the week.
Global markets have also remained subdued on doubts whether the unusual measures announced by the US Federal Reserve to pump money into the global financial system would work, analysts said.
The US Fed was joined by the central banks of England, Europe, Canada and Switzerland in a coordinated intervention. The move, in fact, is aimed at averting a crisis that could push the US and the world into recession.
A special lending facility is being set up to make it easier for banks to get loans, beginning with an injection of $40 billion as soon as next week.
Late Friday night, the Reserve Bank of India gave guidelines aimed at tightening credit for mutual funds and asked banks not to guarantee payments to stock exchanges on behalf of FIIs.
Analysts, though expects the affect of the circular on the markets to be marginal, they believe the starting hours on Monday to be crucial ones.
In the guidelines, RBI said entities such as FIIs are not permitted to avail of fund or non-fund based facilities such as irrevocable payment commitments (IPCs) from banks. The RBI added funds provided by banks to equity-oriented fubds would be factored into individual banks capital market exposure limit.
As far as other MFs are concerned, the central bank said they could borrow up to 20% of the net asset of the scheme from banks for six months to meet temporary liquidity needs such as repurchase of units or payment of interest or dividend to unit holders.
Mutual funds have invested Rs168.50 crore net in equities so far this month.