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Monday, Dec 27, 2004

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Reliance proposal may set the tone

Virendra Verma

The expiry of derivatives contract on Thursday is another crucial event for the market.

WHEN the stock indices are at their all-time high levels, FIIs inflows of over $8.5 billion and investment environment full of all positive developments, what could go wrong for the stock market. This is now the biggest concern for the market players.

The fear that the Ambani brothers could spoil the bullish party has also not come true.

Some of the players who anticipated such a thing to happen and went short on the stock last week were trapped and they will now have to buy them at higher levels.

The upward movement in the Reliance Industries stock by almost Rs 45 last week was the main factor for the BSE Sensex to touch 6500.

Last week, the BSE Sensex gained more than 150 points (or 2.39 per cent) and a similar movement was witnessed by NSE's S&P CNX Nifty.

The FII inflows continue to be positive despite the month being the last one of the year, which also led to further bullish sentiments.

Next week, most market players' eyes would be on the outcome of the Reliance board meeting on buyback of shares.

The overall view of the market players on the stock is optimistic as they feel that this time the company would go ahead with the buyback plan and the offer price would be in premium to the current market price.

So major action in the Reliance stock is expected.

The expiry of derivatives contract on Thursday is another crucial event for the market. It has been observed that just before the expiry, the stock prices moved up and this trend is likely to continue this time as well.

The BSE Sensex is likely to move up further by another 100-200 points next week before it sees some selling.

However, this kind of movement is only possible if Reliance Industries comes out with a buyback which is more market friendly or in line with the market expectation.

Dealers said accumulation in several mid-cap stocks (which are likely to show good financial performances) is likely to happen next week. In this backdrop, investors should buy stocks with at least the January-end perspective.

In the third quarter, also a festival season in the country, companies selling consumer items should show good growth; automobiles, retailing, consumer durables companies are expected to show good financial performance in the third quarter. So investors can take positions in these sectors.

There are other sectors that will also show good results, but its direct relation to the festival season is difficult to judge.

Last week, IT stocks showed some weakness after a leading foreign broking firm advised its clients to go under-weight on the sector. This was primarily due to the appreciating rupee.

But on Friday, there was some buying in IT stocks and the view is that the margin pressure for IT companies would not be much as the situation in the sector has improved.

Moreover, most of the companies are in a position to command higher billing rates. So one can expect upward movement in IT stocks.

But the trend for the next week will be set by Reliance Industries and if it surprises the market, there will not be any looking back either for the RIL stock or the market.

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