Sensex Peaking, Correction Ahead

The BSE sensitive index has witnessed an upward trend gaining 188.54 points over the past six trading sessions, moving from 3685.31 on May 28 to 3873.85 yesterday.

This has happened despite the lack of liquidity at the markets and FII buying being restricted to some pivotals.

With the sensex touching the 3900 mark during yesterdays intra-day trading, marketmen say the current short upswing is set for a reaction shortly, in fact early next week of over 100 points.

According to technical analysts, a downward trend has been predicted with the next first resistance at 3888.0 levels while support at the tail could come at 3659.0 levels.

Ashith Kampani, head of equity dealing, J M Share and Stockbrokers Ltd said that in all probability the sensex would see a technical correction of 100 points. No rally can ever be purely investment based or speculatively managed.

There is a speculative side to every rally, he said. A section of the market view the current upswing as an engineered rally from speculative elements with the aim to reduce any impact of the petro-price hike in the coming days.

Trading activity at the BSE remains dull with only 2,109 stocks traded yesterday from an overall 6,679 listed stocks.

Most analysts have predicted a consolidation for the sensex between 3650-3890 levels.

. According to FII Morgan Stanleys latest fortnightly report, the market could move up decisively only after the petroleum product hike comes, especially if the government raises the prices of subsidised petro products more than for others.

On the whole, the poor corporate results have not had the adverse effect which might have been expected. It can be concluded that lower earnings for fiscal 1997 have already been factored in, the report adds.

Most of the activity over the past week has been centered around select stocks like HLL, ITC and Reliance. Also all these scrips have spurted mainly on rumours of bonus payment.

Leading FIIs are of the view that the fund allocations for the country have the potential to improve but at a steady pace. There are still inherent negative factors which need to be ironed out including streamlining of regulations/pricing for infrastructure projects, need to privatise public sector enterprises faster and further strengthening of the regulatory mechanism for the capital markets.

According to Nikhil N Khattau, chief executive officer, Sun F & C Asset Management Pvt Ltd, the stock markets over the short term could face an overhang of bad news through a petro-price hike and developments linked to the CRB fiasco. A reaction could thus come about, he said.

Indian stocks, however, remain undervalued and thus a net gain for the markets could be seen over a six month period, he said.

K R Bharat, director, CS First Boston said, The market looks toppish from here. The potential for the markets to take off remains but this potential has yet to be translated into action. There is no point in the markets to react to policy issues (in this case, the report on capital account convertibility). The actual implementation of these must come about.