Week ahead to test market

Profit booking possible in the present mood of caution

The recent strength in stock markets, which helped benchmark indices post fresh highs, could be tested in the week ahead as investors and traders may seek to book profits. Market participants said the undertone would remain cautious because of the general feeling that current valuations far exceed the growth prospects of the economy and companies.

“There is a feeling of put-on exuberance about this rally as the ground economic reality has not changed,” said Ambareesh Baliga, managing partner (global wealth management) at Edelweiss Financial Services.

The benchmark Sensex rose 0.6 per cent to hit a record of 21,321.53 during the 75-minute muhurat trading session on Sunday but could not hold on to early upsides. The index closed at 21,239.36 on Sunday, up 0.2 per cent from Friday’s close. The Nifty posted a record closing high of 6,317.35, exceeding the previous closing high of 6,312.45 on November 5, 2010. Its highest level has been 6,357.10 on January 8, 2008.

According to brokers, the continuous foreign institutional investors (FII) inflows might ensure the market does not fall steeply, even as domestic investors choose to sell aggressively. Last week, FIIs were net buyers of equity at about Rs 4,700 crore, while domestic institutions were net sellers of equity at Rs 3,600 crore.

“The mood in the market is one of caution because equities had run up a bit too much. The rally will continue but after an initial period of consolidation,” said Mayuresh Joshi, vice-president and head (institutional sales) at Angel Broking.

In the week ahead, the Nifty could remain within the 6,100-6,400 range, according to analysts. “Any dip below the 6,200-levels should be seen as an opportunity to go long as there is clear strength in some of the frontline stocks. The market is in a clear uptrend and could even go up to 6,450-levels after some initial consolidation,” said Ashish Chaturmohta, head of technical and derivatives analysis at Fortune Equity Brokers.

He believes equities would continue to rally despite nervousness in the market. “There has to be some amount of skepticism in the market for the rally to sustain. If there is euphoria surrounding the rally, then it would fizzle out soon.”

Analysts said with the Sensex at new highs, stocks of the mid-cap segment could start seeing some movement as well. The Muhurat trading session saw some activity on this front as domestic investors bought into the small and mid-cap shares as token investments.

Foreign investors, who had increased exposure to technology, private banks, pharma and some select stocks in the infrastructure, would now increase exposure in sectors, particularly in the mid-cap segment, where valuations are low, analysts said.

“Based on the accumulation that we have been witnessing in the public-sector banking, capital goods and infrastructure space, it looks like foreign investors are looking at sectors that had been beaten down. Valuations in the mid-cap stocks of these sectors is much more attractive than even some of the index front-liners,” said Joshi.

“We could see some movement in beaten-down sectors like infrastructure, engineering, capital goods and public-sector banks as foreign investors will be looking for attractive valuations,” said Baliga.

The week ahead will see results of BHEL, Tata Motors and Punjab National Bank being announced. Analysts said these results will not impact markets too much as most of these numbers have already been accounted for in the market.

Tata Motors is expected to post good September quarter earnings numbers on the back of good growth in its Jaguar-Land Rover volumes. BHEL could disappoint markets with lower net profit numbers and revenues due to its weak September-quarter order book.

Punjab National Bank results will be in line with the other public sector bank results released last week, analysts said. State-owned banks saw a late recovery last week as the numbers posted by other public sector banks such as Bank of Baroda, Bank of India, Union Bank and Allahabad Bank, among others, were better than market expectations.