Correction before pre-Budget rally

MARKET WATCH

The market barometer Sensex gained 46.70 per cent in a year as it climbed to 13786.91 on Friday "� the last trading session of calendar 2006.

The benchmark index was at 9397.93 on December 30, 2005. Closing at 3966.40, the 50-share Nifty, on the other hand, generated a return of 39.83 per cent from the 2836.55 level it touched on the last day of 2005.

None of the market participants expects to see a repeat of 2006 next year. The year 2006 saw the total market capitalisation rise a robust 45.97 per cent, to Rs 36,52,794 crore on Friday from Rs 25,02,463 crore at the end of 2005.

However, outlook for 2007 is certainly not bearish. "We are optimistic on the market outlook for 2007. This is because of improved fundamentals, robust economy and strong domestic and FII liquidity. We believe investor should stay invested with a long-term prospective," Angel Broking CMD Dinesh Thakkar said.

"Private equity flow is strong, and huge money is coming towards Asia, which will be a good sign for the market," said Sushil Choksey, director, Rosy Blue Securities Pvt Ltd. The short-term outlook is indeed uncertain.

The Sensex improved on a week-to-week basis as domestic mutual funds bought almost similar quantities that were sold by FIIs. Last week, FIIs sold stocks worth Rs 1,600 crore, while mutual funds bought shares worth Rs 1,370 crore.

As FIIs will meet in early January to decide their new year allocations for emerging markets, the first part of the month does not really hold any big surprise.

The Sensex is currently at the higher end of the range that is being talked about. "At these levels, the previous high of the index is worth tracking," a broker said, adding "at higher levels, selling pressure can't be ruled out".

"The Nifty will find strong resistance at 4050 from where it may correct and then may consolidate till the pre-Budget rally starts," Choksey said. Sideways movements could be expected in the near future, he added.

Usually, the market starts building expectations based on results during the first month of a quarter. Results this quarter are expected to be on expected lines, generally.

The market expects to see a better performance from Infosys following its much hyped ADS issue, and this can provide an immediate trigger for the market to find the future direction.

With the finance minister having started the Budget-related exercise, market may witness a bullish sentiment and position build-ups during the later part of January. But a correction is not ruled out before the pre-Budget rally.

With call money rates now exceptionally high, banks are contemplating hikes in deposit rates. No doubt, a rise in interest rates was a big negative factor for the market and its implications were worth watching, an analyst said.

If call rates tapered off, as expected, in the short term, it was not a serious concern, he said adding "but if it remains high, it will cause problems".