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Dalal Street…More volatility and uncertainty ahead

This article was posted on Jun 21, 2009 and is filed under Market Outlook

The market will continue to witness sideways movement, depending on the global cues and FII flows

After a long time, the bulls appear to be in some sort of pressure with the main stock indices losing some altitude this week. FIIs seem to be a little wary now of putting fresh money into play as stock valuations have jumped after a 14-week rally. Most good news about an impending economic recovery, both in India and overseas, have been discounted. In fact, in several cases, the stock valuations have shot through the roof, discounting even the FY11 earnings. It was pure liquidity and momentum that lifted stocks not just in India, but also around the world.

Surely things have improved a lot in terms of economic data points, but we are certainly not out of the woods as yet. The pace of the rebound in terms of economic growth and earnings gains will be painfully slow. Whereas the market has come a long way at a rapid pace as if everything was going to be okay in a few days. A few headwinds still remain, especially in the advanced economies. Even back home, economic activity and corporate profits will take time to return to the bull market levels.

The market will continue to witness sideways movement, depending on the global cues and FII flows. A few key events like the Union Budget and Q1 earnings will have a definite say in determining market’s medium-term direction. Volatility was pretty high this week, and may remain so next week as well given that we will have the F&O expiry on June 25. Broadly speaking, one should not take undue risks at this juncture when the outlook is a little murky. Waiting on the sidelines, at least till the budget, would be the right approach. One should try and adopt a stock specific strategy.

source: Indiainfoline

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