The Telegraph
Since 1st March, 1999
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Last Week

You have read and heard out and out bullish statements in all the media so far. Technical analysts, fundamental analysts, journalists doubling up as market experts ó all are very very bullish. The long-term target I have heard is a sensex of 4000.This means that the market has done just one-third of its journey so far.

Wondering what will take the market there' Why Reliance has discovered gas (never mind that it will not earn a penny on it for the next four years and even after that we donít know what kind of money it will need to spend on the infrastructure to get the gas across).

The US economy has recovered and software companies are doing very well (never mind that Wipro, the heavyweight in the nifty has had no growth in profit in the past four quarters and is the most expensive stock in the Indian market today). Hindustan Lever and ITC are evergreen stocks and are value picks (never mind that HLL has no growth and is valued at a P/E of 23). A new law to recover bad debts has just been passed and the financial sector will recover lots of money. I am actually positive about this but there are only two bank stocks in the index.

I donít know whether we will hit 4000 and beyond. I doubt if anybody does. A 1000-point rally is usually spread over two to three phases, each triggered off by major positive news that is imagined to change the fundamentals of the economy. We have seen a string of bullish news so far for different sectors and investors are ready for more till the budget.

However, we will not get there without pullbacks and jumping in now is a low-probability bet. I expect a pullback to start later this week. The software stocks may fall, partly counterbalanced by Reliance, State Bank, ITC and Hindustan Lever. One interesting aspect to look out for is volumes.

On Friday the 22nd when the sensex closed at 3141, the volumes were the highest. The next 87-point rise has come with diminishing volumes each day, with the least volume recorded last Friday when the indices closed at the highest level during the current run-up. That may be one sign of a short-term top. If we turn back we may see a 100-point decline spread over four or five days.

The quality of the rise after that decline would be worth watching. It may be led by Bajaj Auto Limited, State Bank of India and ITC. Meanwhile, buying in-the-money puts and calls in Satyam and Infosys Technologies may pay off. Once they set off in either direction, (Satyam above 280 or below 267 and Infosys Technologies above 4600 or below 4400) one can sell the losing option and hold on to the winning one.

Movement of Indices

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

One year ago       3287.56       342.33       1011.26       1067.15       703.20

One month ago       2885.23       348.18       1038.22       936.90       681.25

One week ago       3141.61       366.65       1091.80       1020.15       719.15

Nov 25       3175.56       371.31       1105.73       1026.20       725.65

Nov 26       3187.76       373.20       1111.46       1036.15       731.40

Nov 27       3174.11       372.96       1110.32       1031.10       728.75

Nov 28       3220.75       376.79       1121.86       1049.70       737.50

Nov 29       3228.82       379.33       1130.20       1050.15       741.55

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