Upside likely on strong fundamentals

MARKET WATCH

Amid profit-booking at higher levels, stocks are set for a consolidation and may see an upsurge. The Nifty and the Sensex are trading above their resistance levels of 4,400 and 15,000 respectively. The next target for the Nifty is 4,500-4,540.

US Federal Reserve Chairman Ben Bernanke and President George Bush tried to soothe jittery investors, which led to a recovery in the US markets. Bernanke said that the Fed was ready to act as and when the need arose to help markets affected by subprime woes. Bush pledged help to those, who had fallen behind in their mortgages, to keep their homes, while rejecting a bailout for speculators.

Meanwhile, local cues have turned positive. Inflation is below 4 per cent and the GDP growth in the first quarter at 9.3 per cent is above expectations, showing signs of stronger fundamentals. No negative news in sight has boosted the confidence of investors.

Besides, foreign institutional investors (FIIs), who were major sellers in August, were seen investing in the secondary market last week. FIIs were net buyers of shares worth Rs 905 crore last week, while domestic institutions bought shares worth Rs 744 crore.

In August, FIIs sold a net of Rs 12,338 crore shares, the highest in a month, while domestic institutions bought Rs 9,149 crore shares in the same month. Last week, the Sensex went up by 6.2 per cent or 893.70 points. The rupee too rose against the dollar and closed at Rs 40.88, up 28 paise, on Friday following heavy FII inflows.

The interest rate outlook is changing globally. The European Central Bank is meeting on September 6 to take a call on interest rates. Contrary to earlier expectations, it may not raise the rate this time. Recently, the Bank of Japan also refrained from raising the rates on global issues. The US Fed, at its meeting on September 18, may, in fact, cut the rates.

Market players here too expect a softer interest rate scenario and auto stocks rose on that expectation. The BSE Auto Index was up 6.76 per cent last week.

Signals from the F&O segment suggest that going short would be costly. The Nifty near-month futures traded at a discount of Rs 34.85 to the cash market against a Rs 12.20 discount to the cash market during the last weekend. The trend is pointing towards a lower risk appetite as markets move upwards.

Sushil Choksey, director of Rosy Blue Securities, said, "The market is eyeing to reach a new high as bulls are preparing to take charge of the rally." He feels that interest-rate sensitive sectors such as automobile and banking are showing a buying interest on expectations of a softening interest regime. The current rally is led by Reliance and if some telecom and banking companies do well, the market will then find a new range to consolidate, which for the Nifty will be the 4,350-4,600 level.