Week Ahead: Markets to remain choppy, trade negative

According to the analysts, despite the Sensex closing in the green on Friday, the outlook remains bleak and investors, not convinced about a turnaround, are likely to play safe.

"Traders are directionless at current levels. Volatility will continue in the coming trading sessions," said Aniket Dharmadhikari, fund manager at Krug and Bordman Advisory.

"There are no real positive cues to take the market significantly forward," said Devang Shah, vice president of institutional sales at Sushil Finance.

"Investors will play it safe...the market will be rangebound," he said.

"I won't play with the current rally. The short covering that we saw today was chiefly led by players' unwillingness to hold on to their shorts as markets will be shut for two days next week (Tuesday on account of Id-e-Milad and Wednesday for Holi)," said Sukrut Sathey, analyst at Horizon Capital Advisory.

Agrees Sudhanshu Pandey, chief technical analyst, LKP Shares. "General perception in the market is bearish," Pandey said.

Auto stocks are expected to take a hit with US automobile giant General Motors issuing a bankruptcy warning last Thursday that its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash.

Elsewhere, Japanese shares tumbled to a fresh 25-year low on Friday on worries about the global banking sector, while European stocks extended their losses.

"In this environment of global gloom, people are cautious, and commitment is low," Tejas Doshi, head of research at Sushil Finance, said.

Heavy selling by cash-strapped foreign funds has been a concern, and would set the trend next week, he said.

"Investors globally have become more risk averse. Many are reluctant to put in additional money into markets at these levels and are using relief rallies to exit their holdings," Horizon Capital Advisory's Sathey said.

According to Amitabh Chakraborty, president (equities) at Religare Securities, political uncertainties hovering ahead of the impending general elections in May could also prompt foreign funds to withdraw from Indian markets.

Foreign funds have offloaded about $2.2 billion worth of Indian equities so far this year after withdrawing $13.3 billion in 2008.

Economic slowdown concerns are expected to play a major role in pulling stocks down, analysts warned.

While Arvind Virmani, chief economist to the finance ministry warned that slowdown in India's economic growth will continue until September, government data showed on Friday that India's infrastructure sector output grew 1.4 percent in January from a year earlier, below an unrevised 2.3 percent in December. Infrastructure output rose at an annual 3.6 percent in January 2008, and in the 2007-08 fiscal it rose 5.6 percent from a year earlier. The infrastructure sector accounts for 26.68 percent of the country's industrial output.

Earlier, the government data revealed that both manufacturing and farm output dropped in the December quarter, with manufacturing sector falling 0.2 percent from a year earlier, while the farm sector contracted an annual 2.2 percent.

While policy makers expect India's economy to expand at a six-year low of 7.1 percent in the fiscal that ends on March 31, down from 9 percent or more in the previous three years, private sector economists believe the pace could slow to below 6 percent. Growth in the December quarter was just 5.3 percent.

According to Gautam Shah chief technical analyst at JM Financial Services, Friday's rally could just be the calm before the storm since the bigger picture still remains negative.

Concerns over the outcome of the forthcoming elections and sluggish global markets would put pressure on stocks and the market could touch new lows by April, Shah said.

Sectors like power, metals and technology may go the banking way and be under pressure, Shah warned, but added that the auto sector could buck the trend.

According to Arun Kejriwal, strategist at research and investment advisory firm KRIS, the market would be guided this week by global cues.

"The week ahead will be interesting. Monday might see poor volumes on account of market holidays on Tuesday and Wednesday. In all probability, Monday would be a positively biased day. Thursday would reflect global markets' performance on the previous two days. A rally might turn FIIs into aggressive sellers and if the global markets fall, the panic could spread into India too," Kejriwal said.

"Friday the 13th could be yet another important date for the markets. Holidays reducing the participation could increase the volatility and there could be wild two-sided movements on thin volumes - always a dangerous sign. As a result, this could be another negative week," he said.

"I believe the sentiment has turned negative and fresh investments look difficult at this point. My advise to traders is not to carry home any positions, no matter how strong the feeling and play just for the hour or the day. For investors, the worst is yet to come. So save your money, it will fetch you more in time to come," he added.

Agrees Sangeeta Purushottam, head (institutional business) at Religare Securities. "We have seen short rallies, but there hasn't been enough confidence coming from what's happening globally or domestically to actually sustain those and for people to keep coming back into equities. The big call that a lot of people including many fund mangers are taking is that till such time that there is stability in the US, the rest of the world will continue to struggle despite local measures taken and that's really going to be the big call for equity," she said.

However, D.D. Sharma, research head at Anand Rathi Securities is optimistic. "Our market is ripe for a pullback. And based on Friday's performance, where the indices bounced back from lows to close in the positive terrain, I believe a short term positive trend is on the cards," Sharma said, adding that investors may cover positions given that the market will be shut for two days in the coming week.

Among key developments this week include announcement of IIP numbers. Contraction in industrial production is expected to continue and remain in negative zone. The overall auto sales numbers for the month of February will also be announced this week. Some healthy growth is likely to be seen here. Inflation is also likely to dip below the 3 percent mark.