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Sensex has to cross above 20400 to maintain upside momentum!
Indian equity market – Sensex has arrived near the high levels of 20200 previously seen in January and then in May 2013. This time the up move since June from 18500 levels has been not broad based. The performance has been divided between sectors. A few stocks from IT, FMCG,Pharma sectors are making life time highs whereas stocks in Banking, Metals, Infra sectors are making new 52 week’s low. This is the reason why we say that the current rally is loft sided and lacks conviction.
BSE Midcap index is down by nearly 19% from the high it made in January 2013 and BSE Smallcapindex is down by nearly 25% from its January highs. This itself shows that even if Sensex has reached near its previous 2013 highs the broader market has not shown any signs of improvement. This is one sign suggesting that the rally might not be sustainable.
By using technique of economic cycle analysis we think by mid of 2014 Indian equity markets will form significant bottom and we should see good rally lasting for atleast few years. The current market is a trader’s market and after 2014 we should have investor’s market.
Past week has created more confusion among traders and investors. With RBI action on Monday evening announcing a slew of measures like raising cost of borrowing by banks by 2% to 10.25% to control the slide in Rupee resulted in sharp selloff in equity markets next day. Also Rupee did not appreciate much as expected. However, later during the week FDI reform announcement by government, better than expected results by index heavy weights like TCS, price hike by FMCG major - HUL drove the overall index higher on weekly basis.
For coming week, on technical perspective we think 20200 to 20400 is strong resistance zone for Sensex. Prices have turned from near these levels for 3 times in 2013 itself and for upside momentum to be intact 20400 has to be broken. On downside 19650 is very important support which is also the low created after RBI announcement.
For the rally to continue in this week it will be important that Banking stocks and interest sensitive sectors start showing some performance on upside. Also why we think there is high chance of range bound movement between 19700 and 20300 this week is that there are many beaten down sectors that are oversold and can start consolidating or show some upside pullback and on other hand the strong momentum sectors is due for some downside correction. This will ultimately lead to overall index to move in a range.
In short, if market has to maintain the upside momentum it has to cross above 20400 levels else we can expect range bound movement between the levels mentioned in this week.
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