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Shares make spectacular gains, but fears over volatility remain

Shares make spectacular gains, but fears over volatility remain
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First Published: Fri, Mar 09 2007. 01 36 AM IST
Updated: Fri, Mar 09 2007. 01 36 AM IST
Mumbai: Indian stock prices registered their highest one-day gain in the past eight months on 8 March, with the bellwether BSE sensitive index soaring 469.60 points, a rise of 3.73% above its previous close. The 50-share NSE Nifty index rose 3.72%, to close at 3,761.65 points.
Led by Tokyo, other Asian markets too were on fire, as the region seemed to shrug off the effects of the recent sell-off in equities.
But analysts expect stocks to be volatile for the next month, as investors worry about a range of unsettling factors—especially growing fears of a US recession.
The US Fed is due to announce its new interest rate policy on 20 March. Meanwhile, the European Central Bank (ECB) increased its benchmark interest rate on Thursday, though after Indian market hours.
The Bank of England’s rate remained unchanged.
“One should not read too much into a day’s movement, as the market will be volatile for some time,” cautions Ranjit Kapadia, head of research at brokerage firm Prabhudas Lilladhar.
Experts whom Mint spoke to on Thursday evening said that it was too early to judge whether the downward trend that started on 27 February with the furious sell-off in Shanghai has been reversed.
“I expect the markets to move sideways over the next few months,” predicts Rashesh Shah, head of financial services firm Eidelweiss Securities.
Investors are also looking ahead at the Indian earnings season that will start in the first week of April, three weeks from now. While corporate profit growth is expected to remain strong because of 9%-plus economic growth in 2006-07, investors now have a wait-and-watch approach because of a lower appetite for risk the world over.
“We are keenly looking forward to signs about how good Q4 results will be,” says Amitabh Chakraborty, president (equities) of Religare Securities. A lead indicator will be the early tax filings that companies will make on 15 March.
“We expect strong earning growth even in 2007-08, but the two larger concerns are changes in global risk appetite and the effect of higher domestic interest rates on the investment plans of many large Indian companies,” says Sanjay Sinha, head of equities at SBI Mutual Fund.
Most of Thursday’s gains were made in a last-lap dash in the final 30 minutes before the market closed, which traders say was primarily driven by large scale buying to cover sell positions built in the derivatives market for key stocks like Hindustan Lever and Reliance Industries.
So Thursday’s bounce could merely be because of technical factors—and thus temporary—as short-sellers covered the positions they had built up in the course of the past week in anticipation of continued weakness in stock prices.
Traders say that any such technical recovery could dissipate in the wake of negative news—either local or global. This nervousness is one reason why they expect a market that is choppy and befret of any medium-term direction.
The flare-up in the market indices was fuelled by three counters. Shares in Reliance Industries gained 3.5%, while ICICI Bank rose 4.5% and Infosys Technologies went up 2.4%. Each of these stocks lends significant weightage to the Sensex.
While all sectoral indices rose, banking, metals and capital goods led the rally.
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First Published: Fri, Mar 09 2007. 01 36 AM IST
More Topics: Money Matters | Global Markets |