Markets likely to tread with cautious optimism next week

Business

oi-Sunil

By Sunil Fernandes

Published: Saturday, December 8, 2012, 10:28 [IST]

Markets have rallied substantially in the last couple of weeks, gaining ground largely on the back of liquidity inflows from foreign funds.

Fundamentally, nothing much has changed in the last couple of weeks. Inflation continues to be stubborn, the GDP figures have been awful at 5.3% and India's services PMI has fallen to 13-month low in November.

Markets, more often than not, defy logic and sometimes most analysts also do. How can you lead investors do believe that the Sensex would scale 23,000 points next year, when neither the domestic fundamentals, nor economic fundamentals globally support such heights.

The only reason the Sensex could possibly scale 23,000 points is because there is so much liquidity unleashed by the European Central Bank and the Federal Reserve that a lot of it could find its way into the Indian markets. In fact, that is what has happened throughout the year with FII investment surging past the Rs 1 lakh crore mark in 2012, as foreign funds chase risky assets in emerging markets like India

In terms of the immediate outlook for the markets next week, it's likely to trade flat, with a slight positive bias. The euphoria over FDI in multi-brand retail has already been doused on Friday itself, with the market falling.

It's advisable that the traders avoid large positions next week, given that the markets are likely to remain subdued, as foreign funds could be absent from the markets ahead of the Christmas season. The real action is now likely to shift into the next year.

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