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Last Week

We are probably headed for another major leg up on the back of across the board buying. Software stocks have proved that they have stopped growing and yet their prices have not fallen. Some have even shot up along with the market. In the previous week on Friday the market was weak and the weakness persisted on the following Monday and Tuesday. But given the extent of decline everybody seemed to be waiting for a fall of about 300 points in the sensex. The fall was heavy only on Monday. Tuesday fall was shallow and Wednesday it was marginally up.

I was expecting a staggered move up to 3615 level on Thursday and a rise to 3660 level thereafter over the next few days. In fact, at around 3 pm the index was at 3615 and holding steady. But what took everyone’s breath away was the move after that. In just half an hour, the index launched itself on the path of a relentless climb, reaching all the way to 3678, a 100 point gain. That big gain was followed the next day by another big move of 58 points. In all, from Tuesday’s low of 3534, the market has moved up 200 points, almost recovering what it lost in four days before that. In fact, Friday’s close of 3726 was the highest in this rally and highest since March 2001.

These roller coaster moves of last week have come back after many years and have left everyone flummoxed. Technical analysts are foxed because the moves we are seeing are so rare that they are not part of any pattern and no amount of analysis will work in a market that is determined to move up ferociously after a 900 point rise. On the other hand, those who rely on fundamentals are recommending stocks that have nothing to do with the index. For instance, recent top performers have been SAIL, Bharat Forge, Jindal Steel & Power and these continue to offer great value. The index heavyweights on the other hand are devoid of earnings growth and are not the kind you would want in your portfolio. HLL, ITC, Infosys, HCL Tech, Satyam, Zee, Mahinda & Mahindra are not growing or at too expensive for their current growth rates. And yet, sensex is making the most powerful moves, going up 150 points in two days.

As I said, the current market movements have been so abrupt and random that there is either something funny going on here or its purely driven by massive waves of global liquidity seeking quick returns and also short-covering of bears who were certain of a steep drop after a one-way 900 point move. Next week we are almost certain to take out 3750, especially since at the time of writing this on Friday night, the US markets were doing alright. Above 3750 new buyers will emerge. The way the scrip of Hindustan Lever, which is struggling to get things right in its business, shot up in two days even as all analysts have a sell rating on it, makes me sense we may have a huge uncontrolled run ahead of us. Especially above 3750, new buyers will emerge and we will be headed for a new high, possibly, for 4200. State Bank, Tisco, Telco and Steel Authority look good. I have one new idea for patient long-term investors – Glenmark Pharma. It could be another Dr Reddy’s or Ranbaxy in the making.


Movement of Indices

       Sensex       BSE 200       BSE 500       S&P CNX Nifty       S&P CNX 500

One year ago       3094.96       378.22       1135.73       973.50       744.05

One month ago       3447.45       435.96       1322.25       1085.35       862.95

One week ago       3647.58       455.92       1389.16       1140.00       904.30

July 21       3569.58       446.93       1361.77       1115.80       887.50

July 22       3554.13       444.17       1352.19       1109.20       880.00

July 23       3577.89       446.98       1361.54       1119.05       886.35

July 24       3668.07       456.06       1388.13       1139.45       901.55

July 25       3726.46       463.09       1410.54       1162.75       918.90

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