Saturday, April 18, 2009

Happy Times Are Back?

It has been a stunning rally sustaining for the sixth week in a row. Even the hardcore optimists would not have expected such sharpest recovery in a Bear phase.

Even the poor guidance from Infosys, last week, did not affect the market sentiments beyond a point. Positive global market cues and resumption of FII inflows were the main reasons for such sudden turnaround in market sentiments. Are the happy times back? Whether this mind-boggling rally will sustain in the longer term?

Last week was one more truncated trading week. Though the results of Infosys were in line with the market expectations, the guidance was way below expectations. There was an initial negative reaction in the market but recovery came sharply because of the strong positive undercurrent.

Small and midcap stocks outperformed their largecap peers. Many smaller stocks were hitting upper circuits giving an indication that the operators are back in the market in full swing.

Banking sector was the major gainer for the week as the market was expecting good results from that particular industry. Capital Goods and Realty sectors also recovered significantly on the hopes of an economic recovery sooner than later.

Consumer Durable sector was the worst hit for the week as the traders shifted their focus to high growth sectors. IT sector was negative because of the poor guidance from Infosys. Oil & Gas sector was facing heavy profit booking.

Even though, largecap indices have successfully broken the psychologically important 200-day Moving Average levels, they could not sustain above these levels for a longer period of time. There was an indecisiveness prevailing in the market at the higher levels evidenced from the sharp rise in India Vix, the volatility indicator, to 50 plus levels.

Inflation fell to new low level of 0.18% even though the market expected it to be much lower i.e. to hit negative zone.

Week Ahead?

All-important Quarterly Review of the Monetary Policy (RBI) will be published during the coming week. There is a divided view in the market whether RBI will cut its policy rates in this review. Even though the WPI inflation is hovering near zero levels, the more important CPI inflation is still in double digits. Market will look for fresh cues from the Monetary Policy.

US economic data and global markets may also be closely followed. This month alone, FIIs pumped more than Rs.3000 crores into Indian markets. Further inflow is crucial for the market to sustain at higher levels.

There is a divided view in the market on the direction here onwards. A section of the market players feel that Nifty has made a “Double-Top” pattern in the 200-day moving average zone and has fallen thereafter in the last week indicating that there will be good amount of correction downwards taking the Nifty to 3150 levels.

Another section believes that the bull phase has just begun and there will be a longer bull run at least till the election results are announced.

Technically Nifty has to firmly close above 3500 points to sustain the current rally. In such case, next targets will be 3600 points and 3750 points. If the Nifty falls below 3300 levels, the downward target will be 3150 and 2970 points.

Happy investing times ahead.