Banking stocks drive the rally

MACRO TECHNICALS

The Nifty is likely to consolidate at current levels, with an upward bias.

The market shot up on Monday and range-traded for the rest of the week. The Nifty closed at 5932 points for a gain of 4.04 per cent, briefly crossing above the 6000-level. The Sensex was up 3.81 per cent at 19976 points after hitting 20,000 plus.

The Defty rose 4.38 per cent as the rupee strengthened yet again after the RBI announced a marginally tighter monetary policy. The Nifty Junior was up 3.2 per cent.

Breadth was positive and volumes were fairly high except on Friday. The CNX Midcap gained 1.79 per cent while the BSE 500 was ahead by 3.92 per cent.

FIIs were net buyers as they appeared to have absorbed the implications of clarified participatory notes policy but mutual funds remained net sellers.

The Bank Nifty delivered an extraordinary gain of 9.6 per cent on a relief rally after the credit policy. The CNX IT was about the only sectoral loser, down 1.65 per cent.

Outlook: Consolidation within the broad range of 5700-6000 seems to be the current pattern. Look for closes outside this zone to set the next trend. Friday's trading pattern ended strong so, there is some reason to presume an upside is more likely. But it may not come immediately.

Rationale: The market is swinging through an unusually high range of almost 200 Nifty points per day. Diwali usually tends to be bearish because retail and operator volumes dwindle but the FIIs are still net buyers and they have the resources to keep the market buoyant. The next upwards breakout would set a target of about 6300 Nifty.

Counter-view: Friday's trading session was open to several conflicting interpretations. Prices moved up through the session "� that's bullish. Volumes were very low "� bearish. The high-low range was wider than the immediate previous sessions "� indicative of a potential breakout. Trading was spotty "� many counters were "under-traded" (relatively low no. of trades as well as low volumes) "� this suggests more range-trading.

Bulls & bears: The big gainers were banking stocks, which saw in a strong relief rally after the RBI held rates unchanged. Banking heavyweights SBI, HDFC Bank, Bank of Baroda and ICICI Bank contributed a lot to overall index gains. Other major gainers were L&T, ONGC, Tata Power, Biocon.

The big losers were telecom stocks with market leader Bharti Airtel taking a special hammering. Hero Honda also took a beating as did several other auto stocks. As mentioned above, IT stocks lost ground until Friday. However, Tata Motors and TCS both looked as though they had bottomed out.

MICRO TECHNICALS

BIOCON
Current Price: 564
Target Price: 585

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The stock has made a promising looking breakout on high volumes. Keep a stop at 545 and go long. The minimum target is 585 and the likelier target is 600. Book partial profits in the 580-plus zone and consider keeping a delivery position. The long-term trend may have changed for the better.

HDFC BANK
Current Price: 1770
Target Price: 1850

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The credit policy sparked a sector-wide rally but HDFC Bank was one of the most promising performers. Keep a stop at 1740 and go long. There is a significant downside risk due to the almost-vertical rise. The target is likely to be 1850.

ONGC
Current Price: 1366
Target Price: 1435

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There has been a breakout in the past three sessions with decent but not extraordinary volumes. The target would be a minimum 1435 and perhaps a great deal more. Consider booking partial profits at 1435 and holding a delivery position through the next eight-ten weeks. Keep a stop at 1330.

RNRL
Current Price: 141.9
Target Price: NA

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The stock shot up 40 per cent in a week on a sharp volume expansion. It's impossible to set a target with this formation. Set a trailing stop at 130 and go long. Move the stop up 5 units for every 5 unit move. Unfortunately the move has come so fast that there is a lack of support and you have to set a wide stop.

TATA POWER
Current Price: 1304
Target Price: 1400

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The stock has made an apparent breakout but this has come on low volumes, which makes it less likely to fulfil optimistic target projections. However there is a target of 1400-plus so and very good support at 1260 so it's worth going long. Keep a stop at 1250 and go long.

(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)