The Hindu Business Line : Index Outlook

Indian markets demonstrated their patriotic zeal by ushering in the 60th year of Independence with a weekly gain of 274 points in the Sensex. In a week that was devoid of triggers, the Prime Minister's speech on August 15 provided the cue to the markets to send the price of oil marketing companies soaring.

Falling international crude prices too contributed to the buoyancy in the markets.

Interest in the midcap and smallcap stocks continued last week. The BSE Midcap index gained 3.3 per cent for the week while the BSE Smallcap index gained 3 per cent. Sentiment readings show that market participants are largely skeptical of this rally.

The large build-up in Nifty put options underlines this fact. The open interest in the derivatives segment too has not become uncomfortable yet.

The momentum readings are unchanged from last week. There is a perceptible slow down in momentum in the short-term oscillators. This is understandable as the Sensex has been moving up relentlessly over the last two weeks. Weekly oscillators are in the process of reinforcing the buy signals that were generated two weeks ago. The 14-week RSI has moved to 59 and the 10-week ROC is deep into the positive zone.

The inference to be drawn from the oscillators is that, though there may be short-term blips, the Sensex can head higher to 11758 and then to 12015. The supports for the Sensex this week would be 11256 and then 11074. The short-term outlook will remain positive as long as the Sensex stays above 11000.

The intermediate term view too remains the same. We are in the B wave of the correction that started from the peak of 12671. As explained last week, it is not possible to predict where this wave can terminate.

Since our markets revel in beating all expectations, both on the upside as well as the downside, it makes sense to ride this rally as long as it lasts.

To sum up, the Sensex seems headed towards 11758 and then to 12015 over the medium term. Our outlook remains positive as long as the Sensex stays above 11000. Investors should, however, stay watchful and invest with a long-term perspective only.

Nifty (3357)

Nifty closed with a gain of 2.5 per cent last week after hitting an inter week high of 3385.15. If we extrapolate the move from the low of 2595 in the Nifty, the target of the third leg falls at 3484. That would be the medium term target for the Nifty. There is a short-term target at 3449 where it can face some resistance.

Supports for the Nifty this week would be at 3292 and then 3234. The short-term outlook for the Nifty would stay positive as long as it stays above 3220.

Global Cues

Global markets had a reprieve last week, as finally there were some positive news flows in the form of cessation of hostilities in West Asia and signs of Federal Reserve bringing rate hikes to a halt. DJIA closed strong at 11381.4. It seems to be headed towards its May highs of 11700. Nasdaq Composite Index too was a strong performer last week, gaining 5 per cent.

Other equity markets too made progress. Crude closed at $71.14. Base metals and gold headed lower.

Lokeshwarri S.K.

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