November 2: At the end of last week there were no strong signs of the world markets finding an order. Though the Hong Kong market moved into positive territory, it was not strong enough to break the vicious circle. The crisis kept moving back and forth around the world financial markets last week. The Indian markets were caught in the crossfire, though a clear picture was not available as the Mumbai Stock Exchange was closed for most part of the week. The National Stock Exchange moved in line with the rest of the world, falling and recovering with the same magnitude on both the days.

Though the markets will continue to be volatile next week after trading resumes Monday on the NSE and BSE, they are likely to be in bear orbit even if a semblance of stability is restored to the world markets.

This is because the Indian markets have discounted the first half results of only a handful of large companies. A clear picture of the first half performance will be available when the results of at least the top 200 companies are available. The giants in the core sectors (ACC, Tisco and Sail) are yet to announce their first half results.

But the crucial question is even if stability is restored to the world's financial markets in the next couple of weeks, will the FIIs come back to Indian shores now? The chances look bleak at least till the end of December. Apart from the current turmoil, the year-end accounting (December) will come into play soon, which will be the determining factor in FII inflows. The Indian markets for the last three years have been witnessing outflows on account of FII redemptions towards November and December.

The return of the FIIs could then begin well after the turn of the new year. Till then there is very little for the bulls to feed on in the markets. The only sparks that could ignite a small fire towards the end of the calender year could be the expectation of results from MNCs like Hindustan Lever whose accounting year closes on December 31.

Contributing to the bearish trend could be a couple of negatives factors. For one political uncertainty still continues to cast its shadows on the market. The other is if export growth does not pick up and the trade gap widens rupee could come under pressure.

Ironically, in the current scenario the benefits of a growth friendly credit policy has been ignored by the markets. In fact, lower interest rates are expected to have a positive bearing on corporate bottomlines in the second half of the current financial year. The saving on interest cost should help many companies withstand the pressure on margins coming from the series of cost hikes triggered by the petro-product price hikes.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.