Investors may adopt a cautious approach

Investors in the Indian share market are expected to adopt a cautious approach this week after the benchmark index lost 3.5 per cent last week, stung by a wave of selling across the board.

The 30-share Bombay Stock Exchange index, the Sensex, closed last week at 4,757.37 points, down 3.5 per cent on the week.

On the National Stock Exchange, the Nifty index lost four per cent to finish at 1,506.05 points.

However, the index managed to recoup some of its losses on Friday, driven by strong quarterly earnings numbers from a number of blue-chip companies coupled with fresh inflow of funds from foreign institutional investors. According to market sources, foreign funds have pumped in close to $1.2 billion this month.

"The worst seems to be over for the market. But we advise our clients to wait and watch until the derivatives contracts expire on Thursday," said the head of a leading city brokerage. He said the market is expected to gather steam this week after a four-day correction.

Traders and fund managers say the undertone in the market is still positive, as international investors remained bullish about the growth prospects in India. "The four-day correction, which the market witnessed last week, will add further strength to the market."

The market ran out of steam last week, hit by huge outstanding positions in the futures and option segment coupled with an overall bearish mood in the global markets. The sentiment was also affected due to worries over the prospects of the ruling BJP coalition government in the forthcoming elections.

"The benchmark index is likely to face strong resistance as it moves closer to the magic figure of 5,000. Market players are also waiting for the busy season credit policy to be announced on November 3," said the head of treasury operations at a leading private bank.

The PSU stocks came under heavy selling pressure after the government's decision to put off financial bids for Shipping Corporation of India and Hindustan Copper Ltd. With assembly elections in five states round the corner, analysts expect the divestment process to take a back seat for the time-being.

Investors remained confused over the future trend in the market, which had seen an 800-point rally since September. The selling pressure has also been triggered by the NSE's decision to impose additional margins on 19 stocks in the futures and option segment. There was heavy unwinding of stocks ahead of the expiry of derivative contracts on Thursday.

Market players have also raised doubts over the sustainability of foreign fund inflows, which have exceeded the $5 billion mark in the current calendar year.