Caution prevails

While markets were on a roll last week, things could change dramatically in the next few days

Markets were riding high last week. From Australia to the United States, all countries stock markets simply shot up. The reason for the same is not quite clear except the fact that there is belief and hope that the European crisis would get resolved. The only big positive is that six central banks led by the Federal Reserve agreed on November 30 to reduce emergency borrowing costs for dollars. This led to the global surge and the meeting scheduled for Friday, December 9 is expected to resolve many of the pending issues including the Euro rescue fund. What will come out of the meeting is a million dollar question but the world has rallied on hope and expectation.

Illustration: Jishu 

India too rose very sharply and the benchmark indices put in their best weekly gains in roughly 30 months with the BSESENSEX gaining 1,151.40 points or 7.34 per cent to close at 16,846.83 points. The NSENIFTY gained 340.10 points or 7.22 per cent to close at 5,050.15 points. The broader indices gained less with the BSE500, BSE200 and BSE100 gaining 5.80 per cent, 6.24 per cent and 6.61 per cent. The BSEMIDCAP and BSESMALLCAP gained significantly less 2.69 per cent and 2.32 per cent indicating that this was more of a heavyweight rally and has not percolated down the breadth. This rise last week has come after four weeks of losses and has recovered 56.29 per cent of the fall from 17,908 on the SENSEX to 15,478 points and 54.04 per cent on the NIFTY from 5399.70 to 4639.10 points. The FIIs who were big sellers had turned buyers during the previous week and bought shares worth Rs 695 crore while domestic institutions sold shares worth Rs 346 crore. The Indian rupee regained some ground and closed at 51.22 to the US Dollar.

The big gainers were Hindalco up a staggering 19.10 per cent, JSW Steel up 14.28 per cent, Tata Steel up 11.96 per cent, and State Bank up 11.59 per cent. TCS, REC, PFC and Sesa Goa all logged in gains of more than 10 per cent last week. Amongst sectoral indices BSEMETAL was the top gainer with 10.52 per cent while the BSEBANKEX clocked gains of 8 per cent. The last time the BSESENSEX clocked a four-digit rally was in the Diwali week when the rise was from 16,785 to a level of 17,804.80 points. It took the market 16 trading sessions to knock of 2300 points and make a new low for the year. What would happen this time is a million dollar question but things continue to remain fluid and there are enough of loose ends, which need to be tied up.

Parliament continued to be paralysed on account of FDI in the retail sector. Inflation was down but the GDP numbers for September quarter were substantially poorer. If the trend continues in this manner the GDP for the full year is likely to be below 7 per cent, which is an indication of the slowdown that is now happening. The up move last week was certainly unexpected. This move is not an indication of things going forward and certainly not likely to be repeated. The short positions in the market have been largely covered and a relief rally has happened.

The markets are likely to consolidate in the immediate short term and need to hold on to current levels at the bare minimum if any concerted upmove needs to now happen.

The week ahead has a trading holiday on Tuesday on account of Muharram and Monday would see profit taking and reduction of positions because of the next day being a trading holiday in India while the rest of the world is open. The markets are likely to gain on expectations that the Euro crisis would get resolved in the coming week because of the upcoming meeting in Europe on Friday; however one should not expect a big move like last week.

The BSESNSEX has support at 16,554 points, then at 16,167 points, then at 16,024 points, and finally at 15,849 points. It has resistance at 17,014 points, then at 17,207 points, then at 17,391 points, and finally at 17,475 points. The NIFTY has support at 4,958 points, then at 4,849 points, then at 4,814 points, and finally at 4,754 points.

The NSENIFTY has resistance at 5,102 points, then at 5,156 points, then at 5,245 points, and finally at 5,317 points. The markets have an upward bias technically even though fundamentals have not changed, and are likely to gain but after a steep rise like the previous week, there must be consolidation if the gains are to be sustained. However being an event driven week, things could change dramatically. One needs to be on guard, cautious and be ready to make quick moves. Trade cautiously.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is  for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.

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