The week opened amidst political uncertainity with the UP crisis holding foreground even as the Finance bill was supposedly highest on the agenda. The RBI's desperate sterilisation campaign couldn't prevent the rupee firming up further. The spectre of the inevi-table oil hike also added to the pessimism and uncertainity. High Badla rates of near 50 per cent also induced a lot of tired bull unloading.
On Monday, pivotals nosedived as bulls collapsed under high Badla rates. The Sensex opened with a downside gap and went into near free fall. It finally closed near its low at 3768.74 points after dropping over 107 points. Domestic and foreign FIs stayed out. While SBI and Reliance logged the highest turnovers, Bhel was the best performer among the pivotals recording a new alltime high.
Tuesday saw the slide continue. Settlement day at NSE ensu-red a bearish sentiment on the largest exchange and it was compounded by bull unloading and bear hammering on BSE. The Sensex slid another 43 points to fall to 3725.87 but it hit a low of 3700.02 in mid session when near panic prevailed. Among the hardest hit was Reliance and ACC both of which hit the circuit breaker.
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On Wednesday bears started squaring off their positions on BSE and booking profits. that helped shore up the market while FIIs also came in with investment in smaller scrips. The Sensex hit a high of 3796 before closing lower at 3762.30 points. The Nifty saw more bullish fervour due to the new account and the greater presence of FIIs on the NSE.
On Thursday the selling pressure seemed to ease even though settlement approached on the BSE. FIIs came in to shore up the market and bears started to ease up their full court press. The buying interest seemed to centre on Castrol and Colgate both recording substantial gains on high volumes. The sensex ended slightly lower at 3754.51 points.
Friday saw a continuance of the same trend. Bulls and bears both squared off their commitments on settlement day. The trend remained somewhat negative while being contained by selctive FII buying. The Sensex ended the week at 3745.31.
Technically, this week saw an inevitable correction after the post Budget euphoria. The lack of a cheap carry forward mechanism ensured that bulls would terminate their first charge. In fact, the reaction seems to have started last week on Wednesday March 5, when the Sensex peaked out and pulled back. This week merely saw that short term downtrend being confirmed. The Sensex dropped around 3.6 per cent.
Breadth indicators also saw clear declines with the weekly advance to declines ratio going negative for the first time since the Budget at 345 plus to 1662 minus with 199 active scrips retaining their values. Partici-pation also narrowed as fewer shares were quoted this week compared to the last. However trading volumes remained high.
Right now, the short term trend is negative while the intermediate and long term trend appear to be positive. The market found buying support at around 3700 points which is well above the critical support of 3575-3605.
Until and unless the Sensex drops below 3605, a new pattern of dropping intermediate valleys will not be established. Nor will the new bull market trend be challenged.
The index is likely to need a lot of work in the current zone between 3700-3950 because its meteoric rise was not sufficient to absorb all the selling pressure pent up over the last three years. Lots of people who wish to cut their losses at those levels simply could not participate in the post budget mania. Over thenext several months they will liquidate their holdings. At the same time, if Badla rates remain so high, bulls cannot build up substantial positions or carry them for long durations. Until those technical issues are resolved one would expect the market to seesaw between 3700-3950 points without the long term bullishness being really threatened.