Saturday, July 25, 2009

Another Super Bubble in the Making?

Our market continued its bull run last week also wherein the key indices gained around 4%. Benchmark Index, Sensex, is once again above the psychologically important 15000 levels. Global markets are not left far behind. HangSeng is close to an important 20000 levels. Dow Jones is above 9000 points once again.

Ben Bernanke’s assurance of continuing the soft rate policy for a longer period of time coupled with strong corporate results across the globe lifted the sentiments of the all the major equity markets. Positive US home-sales data has added fresh hopes that the recession would have a quicker end.

Our market’s rally has so far been a stunning one. It offered no chance to the people who were waiting on the sidelines to enter at lower levels. Abundant FII flows were the key reason for such rally. It is noteworthy that FIIs have put in more than 38000 crores during the current year alone. Union Budget was little disappointing for the market. However, it did not stop market’s upward rally. Market took excuse from the parliamentary speech of the Finance Minister and marched ahead as usual.

I expect that the sentiments of the market may turn more positive once the Sensex breaks 15600 levels and the left out so far, may be sucked into the market. Thus market may slip into a Super Bubble Zone wherein fundamentals would take a backseat.

One should not forget here that the macros are not very much convincing as of now. Poor GDP growth, meager credit growth, dropping exports, low IIP numbers, faulty monsoon and unclear global situation do not warrant for doubling of P/E within such a short time.

Even though the corporate results, in terms of bottom-line growth, have generally been good, the top-line growth has only been marginal. The profits were also more attributed to cost cutting and sharp rise in other income rather than core business profits.

Hence the investors may avoid entering into the market at the higher levels and rather wait for any major correction for an entry with a long term view. They may exit their holdings accumulated at the lower levels whichever achieved their target prices.

At the same time, traders have great opportunity to play according to sentiments of the market. They are advised to trade with strict dynamic stop loss limits.

Sensex faces a strong resistance at around 15600 levels and Nifty around 4600 levels. Any strong break out above these levels would give a big bang movement for the market. Monetary Policy announcement by RBI due for the next week will be keenly watched by the market. Quarterly results of Reliance, India’s most valuable listed company, are disappointing and the market may react negatively to it. F&O expiry may add to the volatility of the market.

Wishing for a happy week ahead

Saturday, July 18, 2009

Stunned as ever?

It has been a stunning recovery once again witnessed by the market last week. After losing 1500 points in the previous week as the Union Budget failed to meet the ever growing expectations of the stock market players, market recovered 1200 points almost in the same speed.

Assurance from the Finance Minister on continuing reforms and divestment boosted the sentiments last week and the government siding with Reliance Industries in the KG appeal revived the heaviest among the index stocks. Persistant inflows from FIIs and positive global cues helped the market to sustain at higher levels.

As said earlier, it has been a stunning recovery. Many stock analysts and technical experts failed once again by expecting the largecap indices to cover the gap formed on the post-results day. As usual many who were waiting on the sidelines to invest at lower levels were sidelined.

Market turned to the bullish mode wherein every small positive news is rejoiced and bad news, however big, is ignored. Better than expected results from IT biggies have also helped to lift the street sentiments.

Sensex is back to 14500 plus zone wherein the valuations are little overstreched. Traders may take cues from global markets. Even though, US biggies are delivering better than expected results and stock markets are doing well, oil prices, a key indicator of global recovery, are not showing major upmove which is a cause of concern.

Investors can continue their cherry picking strategy as explained in the previous posts over a period of time with a long term view.

Happy week ahead!