Markets turn jittery ahead of results

This week the markets, which were optimistic about corporate results in the previous week, were less sure about the sustainability of corporate performance in the year ahead. After trying to stabilise during the earlier part of the week, the indices declined steadily on the last two days of the week as overseas investors remained on the sidelines. The markets came down on low volumes indicating lack of buying support.

Global indicators remained positive through the week as crude oil futures saw a sharp fall and US markets regained some strength. Even Asian markets, which had seen large sell offs the week before, managed to close with gains. Then why have our markets become weak despite all these positive indicators?

The weakness started out of fears of an FII sell-off after some serious selling in other Asian markets in the previous weeks. Sections of the markets were the view that it was only a matter of time before FII's unloaded some of their positions in India as well. Absence of any major activity by the FII's lent credibility to this story, even though they sold nothing.

The yearly outlook from IT major Infosys, due on 14 April along with results, is one of the most keenly analysed statements and the market was expecting positive statements from the company. However, selling in Infosys at the NASDAQ this week gave the impression that overseas investors are not so optimistic about next year's outlook. The fact that selling in Infosys happened even as US tech stocks came back strongly made matters worse and led to a sell off in IT stocks.

So, is the threat of an FII sell-off real and is the outlook really bad? FII selling in Asian markets was on expectations of rising US interest rates, which would make equity investments less attractive. Their investment in India is more long term to capture the growth momentum of the economy and may not see a large-sell off unless the economic fundamentals decline drastically. Some short-term funds may get out if US interest rates rise further, but most foreign investors would remain invested.

As regards the outlook, it is true that some sectors would see growth rates flattening after years of very fast growth. But that doesn't mean there would be no opportunities at all. The more efficient and innovative companies would continue to grow fast. Even as Indian companies continue to seek opportunities in global markets, the huge domestic market would partially insulate them from a global slowdown.