The sensex closed last week a shade above 3100, a level many consider to be strong. Worth considering. It was the intra-day low on Tuesday and after that the market stabilised around that level, though it dipped to 3086 on Thursday.
However, if the US goes to war next week, 3100 will be broken easily and we will hurtle towards sub-3000 level. On the other hand, without a clear-cut scenario of a war, the market may just drift. Drifting does not mean a fall.
At this stage drifting would mean a rise, as had happened on Tuesday and Wednesday last week, when the index moved up 60 points from the lows.
As usual, the inveterate bulls far outnumber the realists. If we move up this week we can go up to 3160 or even 3190 provided the market is bullish about the resolution to the Iraq crisis.
It will take a really bullish scenario (a postponement of war) to take the market higher than that, say to the 3230 level. In any case all this may be merely temporary. The bad news is that over the medium term (more than two weeks), we are likely to see lower prices.
From the fundamental point of view, the market is getting to a fully valued state, from an overvalued situation of January when Satyam was trading at Rs 290 and Infosys at Rs 4,800. These and other stocks are beginning to look fairly valued now, from where a rally is quite possible. So, when we eventually have a rally, after the current decline ends in the next few weeks, these volatile stocks will shoot up.
What kind of a rally should we be looking for once the current downturn ends' A 200-point rise from the 3020 levels should take us to 3220, a strong resistance level. It will merely be a tradable rally because the March quarter results of heavy weights will not be anything to get enthused about.
While a quick resolution to the Iraq problem will set stocks soaring in a massive global rally, US’ economic situation will get worse with the burden of Iraq’s reconstruction to be borne by them alone.
The picture remains the same. Small Indian companies will do well out of the domestic growth but large cap stocks that make up the sensex are still in for difficult times.