Profit booking may lead to volatility

Market Watch

Resumed FII buying, positive global cues and the December factor may push the indices up.

The stock markets will continue to rise next week, albeit with bouts of volatility. The Sensex is range-bound between 18,300 and 19,800. New highs will depend on a decisive break on the upside and till then, profit booking at higher levels will keep the markets volatile.

The Sensex rose 2.71 per cent last week to close at 19,363 points. The markets will track the global cues next week in the absence of any fresh developments. The overseas markets are rising on expectations of a rate cut by the US Federal Reserve at its meeting on December 11.

The good news for India is that FIIs have turned net buyers after a long time. Data available on the BSE web site shows that FIIs made net purchasers worth Rs 1072 crore on Friday.

"The short term looks bullish, but there is no clarity in the medium term," said Suresh Kumar Iyer, technical analyst at Asit C Mehta.

Technicals suggest that buying is likely to be strong in the short term, but volume is the key trigger to watch out for in medium term. Any fall in volumes should be considered as a weak sign for the market in the long term. The 18,333 mark is a strong resistance for the BSE.

A breach below the level on a closing basis would invite huge amount of profit taking and this could take the market to 17200 levels. Indiainfoline, in a client note, was also positive on the market. And its optimism is rooted in history. Said the report, "The roaring bulls have welcomed December in style, hoisting the indices to higher levels. December has historically provided one of the best returns. While the P-note issue and FII selling are a matter of concern, the bulls may find their way in select sectors and counters. The numbers from auto manufacturers will flow in. So will figures from cement manufacturers. The retail players will have a lot of opportunities, thanks to additions in the F&O segment."

The brokerage however added a word of caution. "The indices are not expected to rush to new highs immediately. Global cues and Fed expectations will be the major triggers for the domestic market." it added.

The GDP growth of 8.9 per cent in the second quarter was welcomed by the market as the base was higher and a slowdown was on the cards.