Light at the End of Tunnel?

October 2008 has been one of the worst ever months for the Stock Market with its key index (Nifty) registering a huge loss of 26% on a monthly basis. FIIs sold around 15,000 crores worth of stocks during the month alone. However, the last week of the month has raised few hopes of stability returning to the stock markets.

What gives the hopes?

There was a smart recovery in the (last week) opening day’s trade after hitting a multi year low of 7697 points in the intra-day session. Diwali’s Muhurat trading witnessed the best ever Diwali day gain. Wednesday, market managed to hold the big gain with a smooth F&O expiry. Friday, market registered one of its best gains in its history. Thus there were sparklers on every day of the week, registering a gain of 1000 points on a weekly basis. The losing trend was broken in the last week.

US markets also closed positive on a weekly basis. More significantly, the volatility indicator CBOE Vix has come down indicating that the markets are calming down for time being.

There were interest rate cuts by almost all the (major) central banks. India’s turn came after the business week was over as last but not with the least number of cuts. There was a cut of 50 bps in Repo Rate, 100 bps in CRR and 100 bps in SLR releasing around Rs.80,000 crores to the system.

Inflation has also come down on a weekly basis to 10.68% and there are provisional reports indicating that FIIs were the net buyers on Friday. Beaten down stocks like Unitech were the major gainers for the week.

Rupee has marginally strengthened against US Dollar on a weekly basis first time since a month.

What’s ahead?

All the above factors give fresh hopes that market may stage a recovery in the near term, which can take the Sensex to 10750 levels breaking which to 11800 levels. At the same time, if the market is not able to sustain the opening day’s (Monday) gains there will be down trend which may take the Sensex to 8900 points breaking which to 8300 levels.

All depends on the FIIs’ activities, which have been selling in the market with venom thorough out the entire calendar year 2008. But the pace of FII selling may slow down in the immediate future.

I am still having the view that market may hit a fresh trough wherein the panic will set in the minds of Indian Investors (also) before taking any solid up trend. Till that time, market may be consolidating in the range of 9000-12000 levels.

Investors are suggested to look into large cap stocks that have given good September results and public sector banks at falls. Traders may take a position based on the support/resistance levels as mentioned above however with strict stop loss limits.

Rupee may consolidate around 50 levels and may have marginal appreciation in the light of monetary measures of RBI.

Wish You All Happy Investing Times Ahead.