Reliance All The Way

The key factor to the week's trading could be summed in one word -Reliance. Sure lots of things happened or rather didn't happen - Laloo stuck to his guns, the oil price hike did not occur, the monsoon didn't break, Tata Electric had miserable results, so did Bilt, while Essar pulled back a little from a disastrous first half. Also the RBI lowered the bank rate again, the NSE announced its switch to a rolling T plus five settlement, the Civil Aviation policy was revised, and the rupee continued to remain stable. But all that was background static overshadowed by the immediate impact of an 1:1 Reliance bonus and the hectic action in the scrip.

 

The markets continued to rule high, with the Sensex closing above the 4100 mark. There was some profit-taking on Wednesday when the Sensex drew back but it moved up again, driven by the bullish fervour in Reliance. Acccording to Sebi, FIIs have also returned in substantial numbers pumping in over $300 million this month.

The sensex finally closed at 4133.24 points which is an advance of 0.81 per cent over last week's close. The BSE 200 and the Dollex gained 0.72 per cent and 0.67 per cent respectively. Broader indications also showed that the market trend remained quite healthy. Trading volumes reamined good registering a spurt on Thursday coincidental to the Reliance bonus.

The technical position of the market remained good with all three trends apparently in phase. The shortterm trend is still up and so is the intermediate trend. The long term trend has of course, been up by definition since the December bottom at 2812.

There is however a chart resistance at 4130-4150 which is quite obdurate. The Sensex has been unable to pierce that zone despite trading just below that range for a fortnight. Sooner or later the narrow range trading between 4000-4150 must end with a breakout in either direction. The odds must be on a downside breakout because all the short term market indicators are oversold, and the short term trend has been bullish for a fairly long time.

If that resistance at 4150 holds firm, then the Sensex will start to pullback and may come all the way down to 3750 in the event of a poor monsoon and further political uncertainty arising from the fodder scam. But, assuming the long term trend of the market remains bullish and after a short term correction, the bulls starts running again, the resistance at 4150 must be challenged, if not next week, then by early August. If that resistance is ultimately pierced, the absolute top of 4643 in September 1994, will be tested before Diwali.

Market operators seem to feel that corporate results will be better in the first half of 1997-98, while the greater liquidity arising from successive interest rate cuts must also have a beneficial effect on the secondary market. Since the biggest buyers - the FIIs have also returned in force, the long term trend of the market should remain unaffected. Thus, it isn't unduly optimistic to hope for a new absolute top before years-end.