This time, metals add to the glitter

MARKET WATCH

The stock market has seen a handsome rebound, leading to near-term optimism. After a big fall in April due to the CRR hike, the Sensex has risen nearly 1,000 points, with metal stocks leading the rally. Going ahead, the fourth quarter results, credit policy expectations and global cues will determine the market.

Though optimism is on the rise, caution is the need of the hour as firm indications are yet to emerge. Friday's jump of 270 points in the Sensex was due to average results of Infosys as well as lower inflation.

The annual inflation for 2006-07 fell below six per cent after a long time, to touch 5.74 points on Friday, raising the market's confidence that the government would be able to rein in inflation. On Thursday, the government decided to import 1.5 million tonne of pulses in the next 6-8 months and on Friday it cut the import duty on edible oils.

All these measures will keep the prices under control. The appreciating rupee is also helping to keep the import costs under check. There is a five per cent clear-cut cost benefit as the rupee has appreciated by five per cent during the last one month.

In a recent survey conducted by Business Standard, the CEOs were optimistic that the increasing interest rates were still not as high to affect their decisions on capacity expansions. A leading investment banker said, "The market will soon reflect the confidence of the survey." This has already been visible in the market, with the Sensex having gained by 500 points after the publication of the survey in Business Standard.

More results are expected next week. Cement and metals would be interesting to watch. In the last fortnight, the BSE metals index was up 815 points or 9.60 per cent compared with the Sensex rise of 312 points or 2.39 per cent.

The listing of Orbit at a premium has generated interest in real estate companies. ICRA had a handsome listing. Cement stocks will be worth watching as they have been hammered down in the recent months and the demand scenario is still good.

The global cues continue to be good. The results season in the US is also expected to be better than expected. But, many FIIs such as Numura Securities, CLSA, Morgan Stanley and Merrill Lynch were bearish on the Indian market (fund managers survey).

However, the indices levels projected by them have not yet been seen, either because they were way off track or the current rally may not last long. Large scale FII buying is yet to emerge in the Indian market. Mutual funds and high networth investors are still sitting on cash. The investment pattern that will emerge in the coming weeks, will determine the long-term bullish trend in the market.