The six week long elections have ended. Markets which wanted stability irrespective of the party which came to power have not only all they desired or hoped for, but much more. The left is left behind and will have no say in the government what so ever. The Congress and its allies have had a record performance. The Congress on its own gained about 205 seats and the UPA are now close to the 272 mark with roughly 260 seats. The BJP led NDA is far behind with about 160 seats. Monday morning Indian markets opening with a big upside gap is a certainty and what we need to understand is what should an investor do, and going forward once the feel good factor and euphoria dies down what next.
Let us look at the world markets first. All principal markets continued their correction last week and lost ground. The relief rally or the correction to the fall seems to be petering off and now there is a feeling that probably we are at the top of the correction and need to consolidate here. The reason for the consolidation is that economic factors have not changed and the signs required to confirm the market bottom are not yet visible. In such a scenario where we have recovered in India and the world between 50 and 65 %, people expect a period where probably not much will happen and we could spend a few months in such consolidation.
The DOW JONES lost 306.01 points or 3.57 % to close at 8268.64 points. NASDAQ lost 59.08 points or 3.40 % to close at 1680.14 points. Asian markets in keeping with world markets also lost with the NIKKEI losing 167.81 points or 1.78 % to close at 9265.02 points. HANGSENG lost even more losing 599.17 points or 3.45 % to close at 16790.70 points.
Coming to our markets, they were in a confused state and at the close of Thursday were neutral for the week. Friday they gained substantial ground and closed in positive territory for the day and week. Election results would be made available on Saturday and the mood at close of market was one of optimism.
As mentioned earlier results have taken most people by complete surprise and a sharp up move is on the cards. Bullish people are talking about a circuit filter and let me explain what this means. If the SENSEX and NIFTY gain 10% the markets will be shut for 30 minutes. The markets have hit the down circuit on various occasions but in living history the upside circuit has never happened and I believe it is unlikely even this time.
The BSESENSEX gained 296.99 points or 2.50 % to close at 12173.42 points while the NIFTY gained 50.95 points or 1.41 % to close at 3671.65 points. The broader indices such as the BSE100, BSE200 and BSE500 gained 2.61 %, 2.43 % and 2.25 % respectively. The BSEMIDCAP and BSESMALLCAP gained 0.97 % and 0.05 % respectively, under performing the rise in the benchmark indices. The BSEBANKEX was a big gainer up 368.18 points or 6.13 % to close at 6375.65 points. The other big performer was the BSEIT which gained 125.38 points or 4.6% to close at 2850.73 points. The worst performing were the BSEFMCG which lost 38.48 points or 1.84 % to close at 2054.98 points and the BSEPSU which lost 60.31 points or 0.99 % to close at 6038.18 points. Amongst the individual stocks from the sectoral indices, ICICI Bank gained Rs 53.85 or 10.34 % to close at Rs 574.45 while HDFC Bank gained Rs 41 or 3.58 % to close at Rs 1185. Wipro gained Rs 22.75 or 6.41 % to close at Rs 377.75 while Infosys gained Rs 73 or 4.80 % to close at Rs 1594. Amongst the losers Hind Unilever lost Rs 8.6 or 3.69 % to close at 224.30 while ONGC lost Rs 70 or 7.93 % to close at Rs 813.
Foreign Institutional Investors were big buyers this week and invested Rs 5400 crs for the week, which includes roughly 4000 crs in DLF which was sold by the promoters of the company. Irrespective of the fact that DLF was sold by promoters or not, the important fact which needs to be considered or kept in mind is that as much as 5400 crs or roughly 1.1 billion US$ has come in one week. Domestic Institutions after being more or less neutral last week put in close to 950 crs this week.
With a sharp gap up open many of the supports and resistances will become redundant. However I am still giving them as they are likely to be relevant once the markets return to sanity after the three day euphoria. The BSESENSEX has support at 12008 level, then at 11777, then at 11430 and finally at 11142. There is resistance at 12412, then at 12549, then at 13047 and then at 13250. The NIFTY has support at 3617, then at 3535 and then at 3391. It has resistance at 3705, then at 3794, then at 3918 and then finally at 4000.
The driver this week atleast for the first three days is the political success of the Congress led UPA government. Irrespective of how world markets behave we will move up. The markets are likely to correct themselves after gaining between 1100 and 1300 points on the BSESENSEX and a corresponding 300 to 400 points rise on the NIFTY. There would be substantial short covering as well and it must be also remembered that May series of futures is to expire on 28th of May. With a sharp gap opening would money making be possible or not is an important question. I believe it is likely and investors looking to participate in this rally would do well to buy stocks from the PSU stable and also the PSU banks. They can give a decent return in the short rally which is likely to happen. Let me caution people that the present government is the same which has brought us to the present fiscal deficit that we are in and though this time the Left is non-existent, they are out of the government since July 2008. I am not trying to do Congress bashing but trying to say that the feel good factor is good and should be ridden and money made, but at the same time one must also remember that after the honeymoon, reality has to be faced.
Details about FDI, rupee stability etc we will discuss next week.
This week all that is important is to ride the rally. In short readers should ride the rally to 13200-13500 and then book profits.
Arun Kejriwal runs his own advisory firm, M/s Kejriwal Research and Investment Services Pvt Ltd. He advises HNIs, corporates and brokers on managing portfolios and investment opportunities.
He helps new promoters to tap the capital markets and also those who are keen to learn the nuances of the market. Equipped with a commerce and law degree, he has rich experience of over two decades in dealing with the markets.
SEBI disclaimer: I have no investments in any of the stocks referred above.
The writer invites comments at firstname.lastname@example.org