Stock Market may show more volatility in near term

Market is now on gaining mode and added over 800 points in three consecutive trading sessions. But the current gain is only the outcome of short covering and lower level buying. Fundamentals are still not in tandem with this short term jubilancy.

As per analysts, strong corporate earnings posted by Tata Steel, coupled with short-covering by speculators buoyed the sentiment but widening concerns over the different scams may continue to extend pressure in the near term.

Ongoing probe into the telecom spectrum allocation had already exerted hard pressure since the commencement of this year as investors moved out from the shares of firms which are perceived to have weak corporate governance standards.

Most of the companies' quarter results have already been out so the focus will now on Union Budget 2011-2012 that will be presented in parliament on 28 February 2011. Markets will also take guidance from Economic survey and Rail budget.

Rising food prices, current account deficit and slowdown in industrial growth will remain main concerns for Finance Minister. In its budget government may announce steps to contain inflation. But the same time industrial growth will also remain in concern.

The finance minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of April 1 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

Also there are concerns of slowdown in corporate profit growth going ahead. With the rise in key policy rates by the Reserve Bank of India recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth.

But the main concern is now on undergoing probe on different scams. Earlier on Tuesday CBI had questioned the top officials of some telecom companies, including managing director of Unitech Sanjay Chandra, in connection with its probe into 2G scam and some of them were confronted with arrested former telecom minister A Raja.

This was followed by the questioning of chief financial officer Arun Mandhana and chief regulatory officer Rajeev Sikka of S-Tel, a company which was issued licenses in five circles during the same period.

Managing director of DB Realty and vice chairman of Etisalat DB, the venture between DB Group and Abu Dhabi's Etisalat on 8 February 2011 who is now in CBI custody also admitted that his company was being singled out and was being made "scapegoat" despite the involvement of more firms in the case.

Most of the analysts are saying that the market will continue to remain volatile as the continuing probe in telecom scam investigation along with uncertain international market have sidelined the traders. In the near term market will also closely watch the development in Egypt. But a lot though will depend on the FII action in the domestic bourses as currently it seems they are in exiting mode.