Last week, the markets were weak till Thursday and then it appears like we celebrated Diwali ahead of time on Friday. Markets boomed as if there is no tomorrow on the back of some aggressive buying by FIIs. Losses were erased and the SENSEX ended with net gains of 354.30 points or 1.73 per cent at 20,882.89 points. The NIFTY gained 93.15 points or 1.53 per cent to close at 6,189.35 points. The broader indices like the BSE100, BSE200 and BSE500 gained less at 1.42 per cent, 1.31 per cent and 1.20 per cent respectively. The BSEMIDCAP gained a mere 0.42 per cent while the BSESMALLCAP gained 0.34 per cent.
The top gainer amongst sectoral indices was BSEMETAL up 3.43 per cent. Other gainers included BSEOIL&GAS up 3.41 per cent and BSEFMCG up 2.31 per cent. There were a few small losers led by BSECAP GOODS down 0.52 per cent. Other losers included BSEHEALTHCARE down 0.38 per cent and BSEAUTO down 0.24 per cent.
In individual stocks the biggest gainer was Sesa Sterlite up 6.6 per cent. Others included Tata Steel up 6.73 per cent, MCX up 14.36 per cent and Reliance Industries 4.87 per cent. The losers were led by PFC down 5.94 per cent. Controversy ridden Wockhardt lost 10.48 per cent while Canara Bank lost 5.35 per cent.
Benchmark indices are at a three year high and if we rally for a few days more they could hit lifetime highs. Unfortunately the good news ends with the broader indices at significantly lower levels. The BSEMIDCAP is at around 5,900 while the peak in January 2008 was 10,300. Similarly the BSESMALLCAP is currently at 5,750 while January 2008 levels were at 14,200. The BSE500 is currently at 7,500 levels while it was close to 9,000 in January 2008.
The point being made is that 30 stocks of the SENSEX and 50 stocks of the NIFTY paint a picture which is not representative of the entire or larger cross section of the market. Even within the SENSEX ITC has played a dominant role moving from Rs 100 to Rs 350 and FMCG giant Hindustan Lever moving from 200 to 600 in the same period. In IT Infosys has moved from 1500 to 3300 while TCS has moved from Rs 435 to Rs 2,120. These were the gainers while some of the big losers have been Tata Steel down from Rs 715 to Rs 328 and Reliance Industries down from Rs 1,240 to Rs 910.
One needs to be cautious at such times when fundamental news which is bad and at times scary, are being completely ignored and markets are booming. Actually it’s not markets, it’s the benchmark indices.
The markets were given a boost by aggressive FII buying after the US Congress and senate agreed to raise debt for three months and allow the country to function. This also means that the expected tapering of quantitative easing would not happen any time soon. FIIs were buyers of equity of R 4,476 crs while domestic institutions were sellers of Rs 1,612 crs. The Indian rupee weakened 20 paisa or 0.33 per cent to close at Rs 61.27.
Inflation news was not good with both the WPI and CPI which is wholesale and consumer or retail inflation rising in September. While WPI rose from 6.10 per cent to 6.46 per cent in September, CPI rose from 9.52 per cent to 9.84 per cent. This rise in inflation means that anticipated interest rate cuts will certainly not happen when RBI meets on the October 29. The World Bank has lowered its estimates of India’s GDP for the financial year 2013-14 to 4.7 per cent from the earlier 6.1 per cent.
CBI has filed an FIR against Hindalco chairman KM Birla and the bureaucrat as part of the coal scam. The ruling Congress party is worried about this issue as the fallout will affect industry, and logically lead to an FIR to be filed also against the coal minister who happens to be the Prime Minister. This issue will be in the news from now on and will have its ramifications as well.
The mood in the market is changing but it is time to become cautious. The rally currently is too narrow to make one comfortable. It has to become broader and more stocks need to participate. Ride th rally in the initial part of the week followed by a correction. Key levels for the SENSEX are 20,410 and 21,205 while they are 6,055 and 6,275 for the NIFTY. The support for the SENSEX is at 20,602 points, then at 20,528 points, then at 20,325 points, then at 20,175 points and finally at 20,115 points. It has resistance at 21,047 points, then at 21,108 points, then at 21,345 points and finally at 21,493 points. The NIFTY has support at 6,106 points, then at 6,073 points, then at 5,965 points and finally at 5,911 points. It has resistance at 6,229 points, then at 6,288 points, then at 6,367 points and finally at 6,418 points.
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 http://ak57.in
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