The markets have seen a fantastic recovery in the past three days on fallback of short covering. However, no meaningful long positions or funds are visible. This rally has left a lot of people wondering whether it’s a sucker’s rally or a sustainable one.
The fact is, we are trading at the higher band of the range — 5,045-5,085 on the higher side, and 4,750-4,800 on the lower end.
The build-up in the banking sector was attributed to assumptions on the Street the Reserve Bank of India (RBI) will cut repo rates by 50 basis points and the cash reserve ratio by 50 basis points on June 18.
However, we have seen some profit booking and liquidation across the board, especially in sectors like banking, interest sensitives, real estate and automobile.
We have some important events unfolding in the next few days. The industrial production (IIP) numbers will be declared on June 12, the inflation numbers will be out on June 14 and the advance tax numbers will be out on June 15.
We believe most of these will be disappointing. The week after will be the RBI’s credit policy review. On the backdrop of these events, the upside is limited and the possibility of indices correcting downwards is quite large.
Our view as a brokerage house for the immediate week or fortnight is to book profit and wait on the sidelines to see how events unfold. Also, internationally, Greece will see elections on
June 17. This will create fresh buying opportunity at 4,800-4,850 levels on the Nifty and 16,000 on the Sensex.
Also, the correction in commodity prices will not have much of an impact, as depreciation in the rupee will offset most of the gains.
I don’t see any significant improvement in FY13, because all issues go back to one place: New Delhi. There is no leadership there. As a result, there are little expectations of any reform or policy push.
For instance, the infrastructure meet achieved little. Feelers will be sent, but nothing material will come out of it. The hope of recovery in 2012 is a little stretched. Consolidation in the markets, therefore, is good and required at this point. We could be trading in the zone of 15,000 and 18,000 (on the Sensex) through the year. We are advising clients to look at buying opportunities that will come up in the next three to six months.
We expect investments made this year to return anywhere between 15-20 per cent by next June, depending on the stock-picking strategy.
The author is assistant vice-president, Geojit BNP Paribas Financial Services