Investors expected to adopt cautious approach

Investors in the Indian share market are expected to adopt a cautious approach this week as selling pressure continued across the board last week amid fears that foreign fund inflows may slow down ahead of the Christmas holidays.

"With assembly elections around the corner, investors are a bit cautious in building fresh positions. The benchmark index is expected to remain range bound over the next couple of days as market players are adopting a stock specific approach," said the head of a mutual fund based in Mumbai.

In the week to Friday, the Bombay Stock Exchange index, the Sensex, lost 1.5 per cent to close at 4,838.54 points. On the National Stock Exchange, the Nifty index finished at 1,540.70 points, down 1.4 per cent on the week. The market will remain closed on Wednesday on account of the Eid Al Fitr festival.

Share prices fell across the board last week on fears that foreign funds may pull back a major chunk of their investments from the Indian market.

However, the benchmark index recouped some of its losses on Friday as the data on inflows from domestic and foreign institutional investors indicated a positive trend on Thursday.

Investors have heaved a sigh of relief following reports that officials from around 30 foreign funds are currently visiting the country to hold discussions with top Indian companies and explore various investment options.

Foreign funds have invested almost $6 billion in Indian equities since January, the highest annual inflow after the country opened its doors to foreign investors in 1992. The Sensex has gained close to 70 per cent from the 2,900 levels in April to the key 5,000 mark recently.

With the derivative contracts for November series expiring on Thursday, investors have started taking up positions in December futures or have opted for a rollover.

Traders expect the market to remain volatile this week as large investments from foreign institutional investors are unlikely over the next few weeks.

Foreign fund inflows into Indian equities take a pause during the November-December period, as a lot of funds tend to exit portfolios to meet cash shortfalls and rebalance home accounts due to year-end considerations.

But some analysts expect mid cap stocks to draw attention this week, as frontline counters look weaker in line with the overall weakness in the global markets. Textile counters have reaped fat gains following reports that the US giant Wal-Mart is looking to outsource goods worth $10 billion from India.

According to traders, liquidity from the domestic and foreign institutional investors will remain a key driver for share prices in the coming days.

In the forex market, the Indian rupee witnessed volatile movement against the dollar last week. The currency, which gained nearly six per cent since January, lost some momentum on the back of the central bank intervention and dollar purchases by importers.