The Telegraph
Since 1st March, 1999
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Last Week

Belying my prediction, the bear could do only limited damage to the bull last week. After falling on Monday and Tuesday, the market resumed its upward journey— easily correcting last week’s fall. By Friday both the sensex and the nifty were up, making it an excruciatingly painful market to watch. All hopes of breakouts and all predictions of an imminent correction have been ground to dust. The market has ground out a few points of gains and losses.

By the way, I was checking the sensex closing figures of December and January since 1992 and each year we had a rise (usually) or fall of about 200-300 points over January. This year, the change in the sensex since 31 December so far — a waterfall decline of 7 points! I don’t think we have had even a month like this so far in the last 10 years. Even the boring August 2001 saw a slow fall not — sideways action for weeks — before 9/11 hit us.

That begets the question: is another major move brewing' It is highly likely that we will see a huge move in late January and February. There are two possible scenarios. One, we get a modest decline of 150 points or so and see a significant upmove of about 400 points. Or we get a really shallow fall now — may be to 3300 and then see the powerful upmove unfold on the back of a string of positive announcements by the finance minister. A third, weak scenario, is we go higher modestly from here and then fall to 3000 or so after the budget. A combination of fully-hedged options on the nifty (buying both put and call and betting on volatility) can get you low risk profits under all three situations.

One of the more interesting trends brewing is the change in winners and losers and watch this unfold over the next few quarters if the market moves up from here. I feel that the leaders in the next leg of the rally will not be fancied stocks like Infosys and Wipro but old-economy stocks ignored for long and just beginning to get attention like State Bank of India (SBI) and Tisco. However, there is a limit to how far these can go and as I said before unless we have a major set of reforms, prices of the index stocks will not go anywhere.

Last week, I said Hindustan Lever Limited (HLL), ITC, Bhel, ACC were looking weak and the only strong stocks in the market were Reliance, Tisco, Telco and SBI, the latter group preventing a major fall in the index right away.

All these followed suit, the lone exception being Bhel, which shot up. HLL is likely to weaken a bit more and Tisco will get stronger. That could be a good pair trade — sell HLL, buy Tisco. And wait for the decisive directional change.

Movement of Indices

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

One year ago       3401.15       357.94       1053.38       1109.20       730.85

One month ago       3311.06       387.55       1155.75       1073.25       759.50

One week ago       3358.99       393.45       1175.71       1080.25       772.60

Jan 13       3327.16       391.17       1169.78       1073.75       769.30

Jan 14       3335.35       392.61       1174.21       1078.95       772.35

Jan 15       3357.69       395.00       1181.22       1085.00       776.00

Jan 16       3373.52       396.56       1186.38       1088.35       779.50

Jan 17       3370.39       396.37       1186.22       1086.50       780.15

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