The Hindu Business Line : Optimism pervades in all corners

DESPITE the weekly inflation number registering new highs, the benchmark indices showed strength and closed almost at four-month high levels thus indicating overall strength in the market. The Friday's close for the BSE Sensex was also the highest in the UPA government regime.

Another interesting trend was active buying in FMCG counters - mainly index heavyweights ITC and HLL. In addition, pharmaceutical stocks were also in action.

The active buying in ITC and HLL is likely to continue. Both HLL and ITC were the two major index stocks that led the Sensex and Nifty rise 2.90 per cent and 2.63 per cent respectively last week.

Most of the buying in HLL has come from US-based pension funds, which have recently registered with SEBI. These funds feel that the business of FMCG major is sustainable. However, the view in the market is somewhat contrary and once the buying is over in the counter, the stock may fall. The most crucial would be the September quarter results, which could be the worst quarter for the company, feel FMCG analysts.

The ITC stock may continue to witness buying interest after winning an excise case last week. Talk is that after this, the company may approach the apex court for interest payment on Rs 350 crore, which it had deposited a few years ago.

Media reports that the President has given his assent to the Finance Bill sent shivers down the spine of some market players during the weekend. The view among them was that the transaction tax might come into effect immediately and could lead to some sell-off.

But tax experts said for this particular part of the Bill, a separate notification from the government has to come. So the expected sell-off due to the new provision (lower short-term capital gains tax and transaction tax) may not come this week. Most likely, this provision of the Budget would come into effect from October 1 and one could see some selling at that time.

Another announcement was the 50 basis points increase in CRR by RBI in two phases, which will suck out around Rs 8,000 crore from the system. The main objective behind this is to curb inflation and this could augur well for the market as even after the 8.33-per cent inflation rate announced on Friday, the market went up.

Buying interest in select mid-cap and small-cap stocks is likely to continue. Brokers said several investors (mainly retail investors) were seen buying shares as they feel that in the current rally (in mid-caps) they are left out; so rally in mid-cap stocks is likely to continue. However, investors who feel left out should look at companies with strong fundamental and growth prospects.

Several market players have already build huge positions in some of the mid-cap stocks and they always look for such opportunity to dump them. In the last couple of months, mid-cap and small-cap stocks have run-up fast and it would be better for investors to wait for some correction.

The markets are now at crucial levels as the closing value of 5370.05 for the Sensex on Friday is marginally lower than the 200-day moving average of 5400.

According to brokers, this week most crucial levels will be put to test and further rise in the index up to 5500 is possible. Overall, the mood in the market is bullish and even if some selling is seen at 5400 or 5500 level it should not be a concern unless some uncertain events take place.

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