INDEX TALK: The market index NIFTY (and SENSEX) has been showing some weakness beyond 6000. And this is less because the market has peaked and reached all time highs, but more because of the F&O expiry on Thursday. F&O traders book profits and now they will do so more because the market is almost at its all time peak and they will thus avoid taking fresh hedging positions in the cash segment.
NIFTY fell to 5991, but quickly recovered to around 6012 and managing to hold on for now. I had earlier written that you need to worry a bit if it dips below 5980. So for now, no worries. This rally is not over yet. It is just a much-needed breather. The markets must consolidate for some time before resuming its journey towards 6320 (SENSEX: 21000), probably by January 2011.
PATH AHEAD: If moderate Q1 earnings could trigger such a rally, Q2, Q3 and Q4 should build on it. Some companies may face some pressure on margins due to inflation and due to reduced construction and manufacturing activities due to the monsoon, but in Q3 and Q4, the companies really step on the gas to meet the yearly financial target. So I do not see the market buring itself out before May 2011. This time investors are much more informed and not buying on sentiments; they are buying only if the valuation is reasonable (not too expensive) and the script has a good growth story.
Keep in mind though that results in Q2, Q3 and Q4 will not have the advantage of the low base effect of the earlier year because of the recovery that started an year ago. Now only good companies who have a robust business model and growth plan and also give high importance to reduce raw materials cost and other expenses will show increase in its margins and sales volumes and will thus be rewarded by the markets. So select stocks carefully and consider all aspects before buying.
The sectors I like: PSU Banks (specific scripts), AUTO and AUTO ANCILLIARIES, Food Processing, Textiles, Shipping, Iron-Steel, Chemicals, Pharma, Agriculture (Irrigation, seeds, fertilizer, pesticides, farm equipments), Construction (select stocks), Sugar (select stocks), Packaging, Micro Finance (select stocks only), Consumer Durables (only IFB, WHIRPOOL, TTK PRESTIG, TITAN, BATA), FMCG (only ITC, HUL, EMAMI, MARICO), Airlines (select stocks only), Hotels (select stocks only), Breweries and Distilleries, Hydro power and alternate energy (select stocks only), telecom (only Bharti, Kavveri Telecom, IDEA to a lesser extent), Oil exploration
The sectors I am under-weight or neutral: Private Sector banks, Non-ferrous metals, gems and jewellery, real estate and housing, Cement, Transformers, Thermal power generation, power transmission and distribution, IT Software and hardware, Heavy Engineering, Mining and Minerals, Media and advertising, Petrochemicals Retail, Tyres.
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