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K.S. BADRI NARAYANAN

Be cautious to avoid any sharp slide

JUBILANT MOOD: A stockbroker looks at the Sensex graph when the index hit an all-time high on the BSE. - Paul Noronha

Last week, though a shortened one, was emphatic for the stock markets as the BSE Sensex and the NSE's S&P CNX Nifty began the Hindu fiscal new year on a strong note.

While the former gained 1.33 per cent to 12,906.81, the latter gained 1.69 per cent to 3,739.35, and both the benchmarks are now near to their all-time highs.

The BSE Sensex scaled a peak of 12,994.45 on October 17, while for the Nifty the peak at 3,774.15 was touched on May 10.

These gains also came on the back of improved trading volumes (settlement at derivative segment aided the improvement in trading volumes).

All is well

One of the reasons for the market to be so resilient is the financial performance of India Inc.

The second quarter numbers did not displease the street expectations. Except auto majors, particularly in the two-wheeler segment, almost all major companies came out with numbers that met street expectations, if not better.

Reliance fire: The major incident that took place last week was fire at Reliance Industries' Jamnagar refinery, which has a capacity of 33 mt a year and has two trains of production line.

The fire broke out at the second train's vacuum gas and oil hydro-treater.

However, Reliance said that the impact of the fire on production would be minimal.

It had said that the temporary shutdown in the diesel hydro-treater has been lifted and all units are currently working at full capacity, relieving market participants' tension.

FII buying: Though the market gained sharply, the overseas players were not very active.

However, they were net buyers on all the trading days but their net buying was on the lower side, emphasising that last week was not entirely on the back of FII buying. Foreign players were also net buyers on the F&O segment.

Global cues

So, with every thing going in favour of bulls, what can taper off the sanguine mood in the market?

Global factors could be one. Like the May collapse, which was triggered by global shake-up, this time too, selling pressure, if at all any, would come from the distant West.

Equities across the globe have been witnessing strong performance since the May collapse and the Dow Jones Industrial Average has moved past its earlier peak.

Despite strong show by the US indices, not many are convinced on the economy front.

The US real GDP grew at 1.6 per cent annualised growth rate, disappointing analysts.

So, any sign of further slowdown or weakness in the economy could spoil the party across the globe as many countries depend on the US.

Though India is relatively less dependent on the US, global happenings could have a ripple effect as happened in May.

US Fed & RBI

The US Federal Reserve has kept its benchmark interest rate at 5.25 per cent for the third month and played down concerns that the housing slump will jeopardise the five-year economic expansion. The FOMC said that going forward, the economy is likely to expand at a moderate pace and reiterated that inflation remains a risk.

However, the RBI, which meets this week, may not keep rates undisturbed.

With inflation rate remaining at 5.26 per cent, street expectations are that the RBI may increase the interest rate by 25 basis points.Though market participants have already discounted this, any rate hike higher than this could check market progress, at least temporarily.

For the coming week, the Sensex may top the 13-K mark for the first time in its history and the Nifty may also be able to set new records.

As last week, the action could mainly be centred around large-cap stocks while only select mid- and small-cap stocks are likely to see buying support.

With the market at peak levels, however, one has to be cautious as any fall could be sharp and swift, leaving the participants, particularly day traders, stranded.

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