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Aug 30, 2003

Markets rally to 31 month highs. Sensex gains 120 points.

Higher volumes, rally continues as software stocks zoom.

Weekly statistics

The value of  shares advancing was Rs. 21434 crores and the value of shares declining was Rs. 14399 crores. This indicates a marginal selling bias. The capitalisation of the breadth shows a buying momentum on the index heavy-weights and selling on small cap stocks. The total traded volume on the BSE was Rs. 10598 Crores. The total traded volume on the NSE  was Rs. 25422 Crores.

The week saw a spectacular rise in the benchmark indices as the software sector participated in the rally in the second half of the week. The indices rallied to 31 month highs and that too with heavy volumes which is a heartening sign. The market breadth though left a lot to be desired for and was marginally bearish. As I have been advocating in the recent past, the bearish market breadth days see a fall in volumes and positive breadth is achieved on thinner volumes. That is sign of selling at higher levels. The week saw many a record being set in terms of new milestones - high volumes, 31 month highs, atleast a third of the sensex stocks hitting new highs and fresh additions into the derivatives segment. The NSE decided to add an I.T. index derivative product for traders and that is likely to see increased participation in the F&O segment. The Sensex was boosted by Bajaj Auto, BHEL, BSES, Cipla, Dr. Reddy, Glaxo, HCL Tech, HDFC, Hero Honda, HPCL, Infosys, ITC, L&T, Ranbaxy, Reliance, Satyam Computers, SBI and Telco. The Sensex  was dragged down by ACC, Castrol, Colgate, Grasim, Gujarat Ambuja Cements, Hind Lever, Hindalco, MTNL, Tisco and Zee Telefilms. The rupee ended the week at 45.85 ( - 00.03 ) levels against  the US $.

Note - Put / call ratio stands at 0.21 : 1

The markets are in strong hands as the buying momentum is suggests. We feel there is a change in the buyer profile as shares are changing hands from the short term players' hands into medium / long term players' hands. The overseas markets have been largely steady and and the Nasdaq has seen a relative out-performance as compared to the Dow Jones index. That is due to the expectation of a higher I.T. spend by the US corporates. That feel-good-factor is likely to trickle down to the domestic markets as well. We expect the software sector to propel the markets into the next leg of the upmove. The PSU disinvestment candidates will see a higher volatility as the supreme court is expected to consider the employees petition. If the SC clears the disinvestment, we expect this sector to to help boost the markets further. The FII investments continue to be positive and the domestic mutual funds have also turned buyers. With the inclusion of new banking stocks in the F&O segment and the impeding reduction in the contract size, we expect the volumes to grow in this segment. The put call ratio has short up again to the 0.21 : 1 which shows a huge tilt in favour of the bulls. Overall, expect a positive outlook with profit taking at higher levels.

The weekly bar chart of the Nifty shows a continued rising tops and bottoms formation as the upmove continues. The inflection point of 1316 has been surpassed and the Nifty has closed above the next minor congestion of 1350 levels. The next resistance for the Nifty is likely at the 1390 levels give or take 10 points. On the lower side we expect the 1312 to be the short term support which should not be violated in the coming week for the rally to be sustainable. Any deeper corrective fall is likely to be arrested at the 1265 levels in the coming week. The oscillators are in the over bought zone for an extended period of time and that combined with resistance at the 1390 levels makes the upsides limited before profit taking sets in.

Our outlook on the Nifty is that of bullishness in the larger sense with a possibility of profit taking at higher levels.

Have a profitable day.

 

Vijay Bhambwani

Ceo :- Bsplindia.com

The author is a Mumbai  based investment consultant and invites feedback at Vijay@BSPLindia.com and  (022) 23438482 / 23400345.

SEBI disclosure -  The author has no positions in  the stocks mentioned above.

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