Investors can expect a bumpy ride this week

Don’t say a day was bad as the next could be worse, says a famous Chinese proverb. And investors in Indian equities may well pay heed to this maxim as the coming week may see stocks at their volatile best with intermittent bouts of buying and selling. Global cues could also act as a spoilsport.

Volatility is expected to remain high ahead of expiry of October 2007 derivatives contracts on October 25, 2007. The P-Notes issue continues to hang like the sword of Damocles over the market and all eyes are now on the SEBI board meet scheduled on Thursday to discuss suggestions put forth by market players to its proposal.

If the proposals are implemented, equity analysts warn of a sharp downside. However, many choose to believe that SEBI may adopt a milder stance while converting the proposals to norms. The market will also look for signals from the video conference to be convened by SEBI chairman, M Damodaran with overseas investors to discuss issues arising from the draft proposal on participatory notes (PNs).

It had been a tumultuous week and benchmark indice lost almost 4.66% or 859 points in that period. The Sensex and the Nifty which had also touched historic highs in the last week, snapped an eight-week rally post the SEBI proposal on P-notes.

Including the provisional figures issued by exchanges for Friday, foreign funds sold shares more than worth $450 million on the last three days of the week. Although, market experts are divided on how the market will behave in the near future, stay invested is what they all advice.

A Merrill Lynch report issued last week said that given sub prime concerns across the developed markets, more money will now come to Asia. The Wall Street firm has upgraded India to market weight saying within Asia, India has the second-strongest growth, and the second-largest economy, after China.

“With the MSCI Asia ex-Japan index’s total twelve month return now in excess of 60%, there must be some itchy trigger fingers in the fund management community,” Merrill’s Hong Kong based strategist Mark Matthews says in his report. It also points out that on the past three occasions when Asian stock markets rose by this much in such a short period of time, subsequent returns were mediocre.

The near term trigger for the market is RBI’s mid term review of annual policy due on 30 October 2007. It remains to be seen whether the central bank does away with a hawkish stance in the policy. However, a near term rate cut by RBI looks unlikely with consumer price based inflation and liquidity remaining high.

Then there is panel meeting-set up by the government to look into Left front’s concerns over the Indo-US nuclear deal-on Monday, 22 October 2007. An action packed week and definitely no place for the faint hearted any more.