The Hindu Business Line : Index Outlook

Indian markets thrived in the blistering month of May with Sensex gaining 5 per cent. Net FII inflow of nearly $1 billion was largely responsible for warding off another bout of "mayhem". With the index just 200 points away from a record high, Dalal Street is getting ready to party again.

The mood on the street is exceptionally upbeat. This is reflected in the high rollover of the May contracts and the fact that the June series has opened with the open interest of over Rs 50,000 crore. Capital goods and consumer durables stocks led the surge last week.

Despite the growing excitement at Sensex nearing its all-time high, the movement of the index last week was pretty boring. The daily and weekly ROC indicators are reflecting this lack of momentum. If this slowdown takes its toll, we can find Sensex slipping towards 14400 or 14228 next week.

But the short-term outlook for Sensex stays positive till it trades above 13915. Should it rally upward in the initial part of next week, we can expect a rise to 14745 or 14929. The open window, created last Monday, fortifies this count.

The medium-term move that commenced in April 2007 is showing no sign of decelerating. This move will gain momentum once Sensex closes above its previous peak of 14723 and propel Sensex towards 14992 or 15576.

The long-term picture has not altered since the end of 2006. We continue to hold the view that the range for Sensex for the year 2007 is between 11000 and 15400 (please see the Investment World edition dated December 31, 2006).

To sum up, Sensex can move higher in the short-term and trading short is not advisable, as we have no signs of reversal yet. But investors should exercise restraint as the index is nearing the upper end of this year's range. They can instead utilise the rally to eliminate the dud shares in the portfolio.

Nifty (4297)

Nifty too moved sideways last week, recording an intra week high of 4325. The short-term outlook for Nifty is positive and we can expect a rally to 4345 and then 4404 in the short term. But, inability to move past 4325 in the early part of the week will drag the index down to 4232 and then 4174.

Short-term traders can utilise the dip to the zone between 4175 and 4200 to initiate fresh long positions. Swing traders can hold with a deeper stop at 4090. A fall below 4090 is required to signal the onset of a deeper correction.

Global Cues

Global equities witnessed a mid-week dip perpetrated by the Chinese authorities' efforts to rein their stock markets. But US markets remained unaffected, the S&P 500 and the Dow Jones Industrial Average making record highs and the Nasdaq Composite racing to a six-year high.

The dark cloud cover in the weekly chart of the Shanghai Composite Index indicates that the index could have launched in to correction of the rally since February 2007.

But corrections in Chinese stocks have been so ephemeral that we would like to see the action this week before drawing a conclusion.

Copper, gold and silver reversed last week. But this rally needs to extend further in order to signal the end of the current medium term corrective phase.

More Stories on : Stock Markets | Technical Analysis | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
What is behind the valuations

Index Outlook