The Hindu Business Line : `Sensex may set its sight at a target of around 4790'

The SEBI Chairman, Mr G.N. Bajpai, once again uttered words of caution for the small investors last week. This is significant as an air of uneasiness is growing over scaling up of valuation in a number of equities in the current rally, which has taken the BSE Sensex to a 30-month high.

The rally has so far thrown up a clear trend of shrap recovery after every sudden fall. The fall of 121 points in the Sensex on August 25 was followed by rise of 148 points on the next session. The 82-point fall on September 3, was more than compensated by the index spikes on the next two days. In the scenario of such violent moves, it has been seen in the past, that the lay investors are the first to get mauled.

The Sensex last week gained 2.93 per cent or 124.44 points. The benchmark index, according to technical analysts, is likely to breach the immediate barrier at the level between 4380 and 4386 points and head towards next resistance level at 4446. The advance-decline ratio, however, appeared weak throughout the week except for Monday. Actions seemed to be concentrated in the frontline stocks.

Mr Vinod Sharma, chief analyst, Anagram Stockbroking, felt that once the index is able to cross the hump at around 4462 points, it may set its sight at a target of around 4790.

According to analysts at Asit C Mehta Investment Intermadiates, liquidity continues to be the driving force for the current market movement. Funds flow figure remained strong at around Rs 1,000 crore in the last five trading sessions. However, weaknening advance-decline ratio and the Sensex disposition (firmly in the overbought zone) called for extreme caution for all long positions, analysts observed.

In Mr Sharma's opinion, high returns seen during the initial period of this rally may taper off gradually and the inherent risk would rise proportionately.

This week the steel stocks, particularly Tata Steel, may take the lead.

In the derivatives segment, the eight bank stocks (initiated on August 29) recorded a collective turnover of Rs 182.71 crore, accounting for 2.76 per cent of the entire derivatives trading during the last week. Considering that the ratio of derivatives volumes of these stock to cash segment quantity was more than 64 per cent, this seems an interesting beginning and promising to be more action-packed in the near future.

A derivatives analyst, however, cautioned the investors that a sharp rise in the bank stocks in the cash segment may be a lure for buying a call. It is interesting to note that some of these stocks till recently were held in margin funding and have been liquidated in the cash market. Corresponding positions in these stocks are now being built in the futures.

The cost of carry is currently ruling quite high for the futures contracts. Experts felt that writing covered calls was a good option.

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