Given a clear electoral mandate and the promise of continuity, Nifty could zoom past resistance at 3,700.
The market continued to rule high with the Nifty closing at 3,671.65 points for a gain of 1.4 per cent, in a week when trading was tightly range-bound. The Sensex outperformed the Nifty, gaining 2.4 per cent to close at 12,173 points.
The Defty had a slightly muted performance as the rupee lost a little ground.
On the eve of election results, the FIIs pumped an additional Rs 5,000-plus crore into Indian equity and the domestic institutions were also strong net buyers. Breadth signals were decent with advances outnumbering declines and most sectors also registered gains. Volumes were fair and the BSE-500 rose 2.25 per cent while the Midcaps-50 rose 1.2 per cent.
Outlook: The Nifty is testing resistance at around 3,700. Given a clear electoral mandate and the promise of continuity, it should zoom through that resistance next week. In that case, a target of 3,950-4,000 is likely.
On the downside, selling by disappointed NDA supporters may pull prices back till 3,550. the upside breakout looks far more likely and suggests that the long-term bear market is over.
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Rationale: The market has traded well above its own 200 day moving average for three weeks. It has moved up 45 per cent from its early March lows of 2,540 on decent volumes and breadth. This intermediate trend has been so strong that it triggers genuine optimism about a major trend reversal. The promise of continuity should keep sentiment buoyant.
Counter-view: The intermediate trend has been in force for 10 weeks. This brings it close to maturity in terms of time. At least some of the bulls were hoping for an NDA government. They will sell and that could trigger a short-term trend reversal. In that case, supports at 3,400-3,500 will be tested.
Bulls & bears: If the market discounts this as a vote for stability and continuity, banks will be among the more favoured sectors.
The Bank Nifty rose over 5 per cent last week and the private banks such as Yes Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank will probably outperform the PSUs. Real estate biggies such as DLF and HDIL are also seeing selective investment while Unitech is generating enormous volumes.
Power and infrastructure is likely to be another favoured area with Reliance Infrastructure, Reliance Power, PGCIL and PFC being backed by various bulls.
IT will remain inversely dependent on the rupee's fluctuation and it could lose ground if FII inflows continue and force the rupee up. Metals and the petroleum sector are likely to be the biggest laggards.
MICRO TECHNICALS
Reliance Infra
Current Price: Rs 820
Target Price: Rs 865
The stock has made a breakout past resistance at Rs 810 on fairly high volumes. It has a minimum target of Rs 850 and a likely target of Rs 865. Keep a stop at Rs 810 and go long. Book partial profits above Rs 845 and clear the position above Rs 860.
Cairn Energy
Current Price: Rs 199
Target Price: Rs 185
There's been selling on very high volumes in the past five sessions. After a key support was broken at Rs 205, there's a likely downside till support is hit at around the 185 mark. Keep a stop at 205 and go short. Clear the position below Rs 187.
Idea Cellular
Current Price: Rs 65
Target Price: Rs 82
A high volume breakout past resistance at Rs 63 should help take it to Rs 72. The erstwhile resistance is now a good support but there's some interim resistance at current levels. Keep a stop at Rs 63 and go long. Add to the position above Rs 67.
DCB
Current Price: Rs 26.80
Target Price: Rs 32
The stock has been generating high volumes and it's testing resistance at current levels. If it closes above Rs 28, it will have a clear run till around Rs 32 and it has the potential to rise till around Rs 37. Keep a stop at Rs 25 and go long. Add to the position if it closes above Rs 28. Book partial profits at Rs 31-32.
Yes Bank
Current Price: Rs 95
Target Price: Rs 105
Price rise has been accompanied by a sharp increase in volume. This could be an outperformer from a bullish sector. It has a minimum target of Rs 102 and if it clears resistance at Rs 102-104, it could run till Rs 115. Keep a stop at Rs 91 and go long.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)