Market Showing Signs Of An Uptrend

After opening at 4204 last Monday, the Bombay Stock Exchange Sensex touched a high of 4365 and hit a low of 4142 during midweek before finally ending at 4347, a gain of around 170 points over the previous week. The market was very much range bound in spite of the huge buying witnessed, since the purchases was restricted to select technology shares and other frontline counters.

The rupee was range bound during the week and is showing signs of stability. This in turn prompted FIIs, who were sitting on the sidelines on fears of further weakening of the rupee to jump into the fray. More like a chicken and egg story where substantial FII inflows itself helped to keep the rupee stable rather than any specific RBI intervention.

 

While on this subject a few points could be considered by the RBI for better management of the exchange rate. Historically, the rupee has weakened by about 6-8 per cent against the dollar annually if one considers the track record of the rupee over the last five to ten years. Now using this as a benchmark if the RBI by its market presence facilitates the process whereby the rupee gradually weakens, it would lead to lesser pain during the process.

The recent turmoil witnessed in the rupee movement was due to the simple reason that the rupee held stable for too long a period and so when the correction finally came in it caused a lot of chaos since it happened in too short a time. It would do the rupee a lot of good if it had a greater daily average volatility rather than short periods of extremely high volatility.

Coming back to the stockmarket, last week saw sustained buying in Infosys Technologies and Satyam Computers which helped the index close higher. Technically, the index is still range bound and has not pierced its resistance level of 4370. However, considering that most frontline index heavy technology counters are near their short term resistance levels and the fact that they are being bought into heavily, it is highly probable that this week may see these counters move up sharply which in turn would make the Sensex pierce the 4370 level for an intermediate upmove.

With the market having bottomed out investors would do well to start buying into the mainline technology counters at regular intervals.

However, with international crude oil prices touching a 10 year high of $ 33 a barrel one should avoid commodity stocks which would be directly impacted by the increase in prices of petroleum product whenever it is announced, since it would not be possible for the government to absorb the entire impact of the rise.

In the past it has been seen that our government acts and takes hard but meaningful decisions only when pushed to a corner. Let us hope that the rise in crude prices is a blessing in disguise which would make our bureaucrats and politicians push harder and faster to taking steps on divestment and the next round of reforms.