Profit-Booking Keeps Shares Within Narrow Range

On Tuesday, the advance-decline ratio was in favour of the Bears with almost two stocks declining to each gain. That, on the face of it, would appear to be a bearish sign, but if one were to look at the quantum of cuts among declining stocks, these were not too deep, indicating that after three weeks of rally there was very hardly any fresh round of delivery-based selling.

The other factor on Tuesday was the reaction of the markets to companies whose quarterly results came lower than expected. In the early part of the earnings season, if a company came out with disappointing results, the damage to the stock price was very high, often with cuts in double digits. But on Tuesday, these declines were not very sharp.

When Punjab National Bank came out on Tuesday with increased provisions on many parameters, the share witnessed a decline of only 5 per cent. This indicates that traders were not keen to take fresh short positions.?

Also, in companies, where results were just in line with expectations, the upward movement was a bit more pronounced. So, money is chasing good news, but the flow out on bad news is limited.

So, while it was optically a bearish day, there were no signs of any trouble. Besides the earnings which dominated the action, the buzz on the Street was that flows from foreign portfolio investors (FPIs) might see an increase in the near-term, boosting sentiment.

Another issue which dominated was that negative yields on bonds in developed markets were increasing, both in terms of magnitude and in the number of countries. This means that excess money would flow to debt paper of India where, even after the adjustment of regular currency deprecation, funds have always shown positive returns. A consolidation may happen, therefore, before any directional movement restarts.

(Shilpa Nagpal is an analyst at Market Wizards Securities Pvt Ltd)