Investors likely to remain cautious

Investors in the Indian share market are expected to remain cautious this week after the key equity index lost two per cent last week, stung by a wave of profit-booking coupled with growing fears over the fate of divestment.

The Bombay Stock Exchange's key equity index, the Sensex, closed last week at 4,217.12 points, down two per cent on the week.

"The market is highly volatile and the benchmark index is expected to face resistance at 4,248 level on Monday," said Shankar Char, senior manager, Cholamandalam Securities. He said the expiry of derivative contracts on Thursday may also result in some volatility in frontline stocks.

Share prices witnessed wild swings last week as the optimism of a bull market gave way to caution and confusion. Market heavyweights led by State Bank of India, Reliance Industries and Hindustan Lever witnessed fluctuations after institutions opted to dump stocks. However, the index regained some its lost gains on Friday.

Nervous trading

The market has witnessed nervous trading throughout last week as fears grew over political uncertainty as a fall-out of the court verdict.

"I expect the current volatility to continue for the next two weeks. The index may witness a sharp correction accompanied by a big jump in share prices," said head of treasury operations at a Mumbai-based private bank.

Heavy blow

Privatisation of the public sector oil companies received a heavy blow after the Supreme Court on Tuesday stalled the ongoing divestment of Hindustan Petroleum Corporation and Bharat Petroleum Corporation, saying the government needed parliament approval to proceed with the process.

Traders expect the market to remain stagnant over the next few weeks, ahead of the quarterly results season that kicks off in the second week of October. They say that the benchmark index is still up about 45 per cent from a six-month low in April helped by huge inflows from foreign funds.

FIIs continue to pump funds into Indian equities despite uncertainties over the privatisation process. According to a data released by the Securities and Exchange Board of India, FIIs invested over $590 million in September. Foreign funds have invested about $2.7 billion since January this year, compared to $750 million in the whole of last year.

Meanwhile, a major chunk of NRI money is likely to flow into bond funds following the central bank's decision to lower the ceiling on NRE rupee deposit rates.