To and FRO

Jan 30, 2012, 06:35 IST | Arun Kejriwal

Markets likely to swing both ways during the week. Play the market for consolidation and use rallies to exit position

Markets likely to swing both ways during the week. Play the market for consolidation and use rallies to exit position

The upbeat mood continued on the bourses last week. This is the fourth consecutive week of rise this month and year. The BSESENSEX gained 494.97 points or 2.96 per cent to close at 17,233.98 points. The NSENIFTY gained 156.10 points or 3.09 per cent to close at 5,204.70 points. The broader indices like the BSE100, BSE200 and BSE500 gained 3.27 per cent, 3.35 per cent and 3.32 per cent respectively.

The BSEMIDCAP and BSESMALLCAP gained similarly at 3.39 per cent and 3.42 per cent. The sectoral indices saw BSECAPITALGOODS gain 5.64 per cent, BSEAUTO 4.29 per cent, BSEIT 4.03 per cent, BSEBANKEX 3.39 per cent and BSEMETAL 3.38 per cent. BSEREALTY was a marginal loser at 0.28 per cent. In individual stocks Sesa Goa was up 12.28 per cent, Maruti Suzuki was up 9.92 per cent, Tata Motors 9.59 per cent, Larsen & Toubro up 8.48 per cent. Hero Moto lost 6.61 per cent.

We had expected some correction last week, but that did not happen and the markets continued its upward journey. The RBI Cash Reserve Ratio (CRR) cut and the relentless buying by Foreign Institutional Investors (FIIs) caught us on the wrong foot. 

RBI announced a 50 basis point cut in CRR, which propelled the markets. This unexpected cut after the RBI announcement about the state of economy a day earlier was certainly unexpected and came as a pleasant surprise. This led to some short covering and fresh buying across the board. FIIs have been big buyers in the market and have made fresh purchases of Rs 4,170 crore in the previous week while Domestic Institutions continued their selling with sales of Rs 1,690 crore. The rupee continued to strengthen and has closed at Rs 49.31 for the previous week.

With two trading sessions for the month of January to end, this is the best performance in many years, probably the best in a decade for the benchmark indices. The BSESENSEX has gained 1,779.06 points or 11.51 per cent while the NSENIFTY has gained 580.40 points or 12.55 per cent. This is a big gain and needs to hold on to it before we could see further gains. Even if we are able to consolidate around this level and in the next month or so remain around the 16,500 level on the SENSEX and 5050-5100 level on the NIFTY it would be creditable.

It is ironical that the worst performing market of last year is the best performing for the current year. The best and most probable explanation could be attributed to the $2 billion foreign inflows and nothing with fundamentals. Hence, it becomes imperative that we hold on to the gains made and atleast consolidate.

The Tax-free bonds issue from IRFC and HUDCO have opened last week and would remain open till February 10 and February 6 respectively. The basic difference in the two bonds is the rating. IRFC is AAA
(Triple A) while HUDCO is AA (Double A). The coupon rate for retail investors is 8.2 per cent for 10 years and 8.30 per cent for 15 years while in the case of HUDCO it is 8.22 per cent and 8.35 per cent.

The issue for Qualified Institutional Buyers (QIBs) and High Networth Individuals (HNIs) have already been subscribed on day one and the issue is on a first come first served basis. There is a condition that the differential in interest rates between the coupon rates offered to QIBs, HNIs and the one offered to retail, is only if the retail investor holds on till redemption. If the bonds are sold in the secondary market the differential coupon rate of 12-20 basis points will not be made. NHAI, which had issued bonds in the last week of December, is expected to list during the week at a premium to the issue price.

Elections in five states will soon begin and all the results would be available only in March. The Union Budget would be announced only after the state election results, putting pressure on the budget because this would be the last budget, where reforms could be introduced before going into election mode next year. There are a few triggers going forward for the week and results would continue to be the key driver. Foreign inflows would be the driver for markets as the sentiment has certainly improved with inflows and markets gaining 11-12 per cent in four weeks.

The BSESENSEX has support at 17.140 points, then at 16,988 points, then at 16,842 points, then at 16,659 points and finally at 16,360 points. It has resistance at 17,293 points, then at 17,445 points, then at 17,658 points, then at 17,813 points and finally at 17,908 points.

The NSENIFTY has support at 5,174 points, then at 5,125 points, then at 5,080 points, then at 5,011 points and finally at 4,954 points. It has resistance at 5,223 points, then at 5,274 points, then at 5,317 points, then at 5,360 points and finally at 5,399 points. The markets will be choppy during the week and unlike the previous week, where it was literally in one direction, there would be a two-way movement, which would be swift in either direction. Play the market for consolidation and use rallies to exit position.  

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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