After a roller-coaster ride, key indices and stock prices ended the holiday-shortened week on a positive note, even though they failed to recoup losses compared to the previous week.
The week started on a negative note as a high-inflation rate continued to dominate sentiment. That sentiment only worsened after the Reserve Bank of India went ahead with yet another round of monetary tightening by announcing a hike in CRR (cash reserve ratio) by 50 basis points in two phases, to mop-up liquidity to the tune of Rs14,000 crore from the system.
However, equities staged a smart recovery on Thursday on large-scale bargain buying by funds and short covering by traders. The strong bounce-back was primarily due to the fact that selling in the previous four trading sessions was overdone and therefore a relief rally was on cards.
The news of a cut in petroleum product prices reinforced market’s confidence that inflation will be tamed sooner.
As mentioned in the last column, all is not going to end on a sour note if the inflation remains high, which is a reality for now. But the economy has the momentum to withstand this inflation also, so one need not panic as yet.
The latest figures released Friday, indicate further edging up of inflation number, but the latest measures adopted by the government would bear its fruits in the coming days and the next update on inflation should be little comfortable.
So as of now, looking strictly for this week, inflation should not be the main concern, though for the following weeks, this may resurface as a concern, if the monetary tightening policies adopted by the government do not help.
This week looks better than the last one, as more gains are in the offing, though volatility can’t be ruled out due to expiry of derivative contracts for the month of February. Also the high open interest in the derivative segment continues to be a cause of worry, but since the rollovers are already on, and scrip-wise details suggest active rollover to the next derivative cycle, a high outstanding position will not spoil the party. But it would continue to remain a worrisome factor. Moreover, since the Budget is now on everybody’s mind, this should also be a deterrent to sell as it is widely expected that the Budget would help boost the market and favour positive sentiments. Given these facts, the stocks are likely to move up further this week.
Technically speaking, the charts show more gains on Monday. The rally, which started on Friday, could continue till Tuesday noon, following which, there would be some profit taking. The profit selling is not likely to be intense and the markets are expected to be firm shortly after brief correction.
However, one needs to track the rollover both on aggregate basis and also scrip-wise to fine-tune the trend. Going by levels, the rising level may come across its first resistance level at 14,550 points, this being a minor resistance, the next level of resistance is placed at 14,712 points, this level also does not pose any threat to the rising Sensex as this too is a moderate resistance level.
The key resistance level to watch out is now 14,891 points, as most likely the rally is likely to test that level in the days to come. On the down side, you can expect some support at 14,091 points, and then at 14,018 points. These are minor supports and the Sensex, if it falls, should find strong support in the 13,850-13,800 range. Any close below this level should be treated as bearish signal.
Vipul Verma is a Delhi-based investment advisor. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org.