The Week Ahead: Tide of money and return of risk
The Supreme Court verdict on 2G licenses is considered as negative for foreign investors. However, we should see strong correction or profit booking in the later part of the week.
An inflow of Rs 5,114 crore in just four days from foreign institutional investors resulted in strong gains for NSE Nifty which rose 2.3 per cent over one week. The Bank Nifty gained 3.3 per cent. The NSE Nifty crossed the 200 days Daily moving average or DMA with relative ease and closed at a three month high.
Globally the “Risk on Trade” is back and most European indices closed at a six month. The Dow Jones Industrial average finished the week at a 4-year high while the Nasdaq touched an 11-year high.
The consensus outlook of bearishness in the first half of 2012 and expectation of a second half recovery made most people miss the January 2012 rally. With stock prices rising sharply most investors are back in the buy mode. The rupee as a corollary to strong fund flows also closed at a three month high.
We had indicated two weeks ago that the Nifty chart was forming a “Inverted Head & Shoulders Pattern” which is very bullish. This week we should test the level of 5430 which is the minimum retracement from the lows of December 2011.
The longer term charts are also showing that the Nifty is now close to entering a new “Bull market” as from the lows of 4531 made on 20 December 2011. The Bank Nifty is already in a new “Bull Market” as it moved from a low of 7766 on 20 December 2011 gaining 30 per cent to levels last seen in mid-August 2011.
Globally, there is debate whether we have ended the 3-year bear market and if 2011 was an aberration year? The price action seems to suggest that now with the risk on trade being back, the smart money is moving from bonds or and other defensive asset classes to equities.
The top weekly gainers in the A Group were Tata Global up 22.46 per cent, Sintex up 17.77 per cent and Jet Airways up 15.39 per cent. Among top losers included Ttk Prestige down 6.36 per cent, Glenmark Pharma down 5.58 per cent and India oil down 5.43 per cent. The CNX Metals was up 6.1 per cent while CNX Reality was up 8.1 per cent.
The market now looks seemingly “Over Bought” ignoring all negative news. This includes the Supreme Court verdict on 2G licenses, which is considered as negative for foreign investors. This indicates that liquidity was calling the shots. We could see some more steam in the initial part of next week with strong US Jobs data on Friday. However, we should see strong correction or profit booking in the later part of the week.
Factors to watch:
1. The duration of the liquidity or foreign fund flow.
2. Global events to watch: mainly Greece’s second bail-out plan and China’s participation in EU funding.
3. Results of Most Laggard sectors: mainly Reality/Infra/power where disappointment is expected.
4. Rupee rally stalling & Bond yields.
5. Nifty levels to watch 5430 at the top end of pullback and 5194 (200 DMA).
(Sanjeev Bhasin is an independent investment advisor based in New Delhi and an expert on NDTV Profit’s daily show ‘Buy or Sell’).