Guardedly bullish sentiment

MARKET WATCH

Last week, the Sensex faced profit-booking pressure at higher levels, as the benchmark index went on to surmount the 14300 hurdle for the first time ever. With the markets at all-time highs, the sentiment is guardedly bullish.

While participants feel the undertone is still good, derivative settlements, ONGC results and the increased inflation rate leading to pressures on interest rates are some of the issues that the Street will react to. Meanwhile, the market is expected to face the heat of profit taking.

During the past week, the Sensex gained 258 points, while the Nifty put on 88 points more. The former faces resistance at 14475 and support at 13900. As for the Nifty, support comes at the 4030 level, while resistance is at 4170.

That the big-ticket corporate results announced so far have been good was reflected in the markets. ONGC and Bharti are yet to announce their results.

While the latter of the two companies is not expected to disturb the trend, the former's performance will be keenly watched and factored in. Generally in the first month of a quarter, buying comes on result expectations and squaring off or profit-booking follows.

The last Thursday of derivative settlements will fall in the next week. Currently at Rs 62,800 crore, open interest positions have been at their peaks since May 2006. Apar from rollovers in the derivative segment, the other issue could be the rising inflation and its impact on interest rates.

With the finance minister hinting at taking all kinds of measures to curb inflation, as it is now at its two-year high, interest rate hikes seem certain. The RBI, which meets for its quarterly review of monetary policy at the month-end, is expected to raise interest rates.

Crude oil prices have an inverse relationship with the inflation rate. That the country's oil basket has fallen below $50 is a good sign in the sense that this may trigger a cut in petrol and diesel prices, checking the rise in inflation.

Reducing the fuel prices may help the government keep inflation under control, but it alone cannot lift the markets to further higher levels. A fall in textile exports to the US is likely as that country's economy is seen slowing down. Incidentally, even Christmas sale of jewellery retail was not good as expected.

At such high levels, some worries and nervousness are expected, but if the undercurrent is healthy, the markets will find support. The general economic scenario is good and the increase in direct tax collections is also positive.

But the rally has thus far been on result expectations. A pre-Budget rally is expected, as it is a traditional affair. But this preceded by a correction seems more real, healthy and ideal thing to happen.