Market rally to continue

MARKET WATCH

The market may scale further highs if the comfort level from the global markets continue. While domestic factors are well within control, the impact of the Chinese rate rise has to be seen when the market opens on Monday.

Over the past week, the market rebounded with a 507-point rise in the Sensex. The Nifty is near its all time high level of 4245. If it crosses the level decisively, it may further go up by 100-150 points, according to chartist.

In this scenario, even the Sensex may cross its earlier peak.

Last week, foreign investors who made money were seen booking profits as their returns were higher in dollar terms. But Indian funds, who were away in the initial period of the bull run that began on April 3 this year, were investing in the market and absorbing the profit booking by FIIs.

Their investments in equities neared Rs 2000 crore in May 19, according to the data compiled by Edelweiss Research.

Cash with mutual funds have come down from 10.5 per cent of their total assets under management in March to 9 per cent in April. It has further fallen, though the exact quantum is yet to be compiled.

Reliance remained strong, rising by Rs 109 during the week. Its market cap alone stood at $70 billion.

Along with such heavy weights, the BSE Oil and Gas Index and the Capital Goods Index, at all time highs of 7,603.08 and 10,157.44, respectively, have kept the Sensex high. Even the broader S&P CNX Nifty closed at an all time high of 3,503.55. These show that the market has started showing some breadth.

With the results season over, inflation being brought under control, and no worries about interest rates hikes, the positive outlook will continue over the next five weeks.

Inflation has to be watched as more steps may be taken if it rises again. The further depreciation of the rupee, which directly adds to the price level, cannot be ruled out.

While expressing comfort with derivatives data, Siddharth Bhamre, fund manager, derivatives with Angel Broking, said: "The recent spurt was more due to short covering and not building up of long positions. Now that the short positions are covered, any negative triggers will have a sharper effect."

The put call ratio has increased from 1.19 to 1.44, he said, adding that the increase in long positions was at a comfortable level and in no case alarming. Rather, he said, there are reasons to believe that the rally may continue.

US market gains on M&As
The US stock market rebounded to post the seventh straight week of gains on an unexpected rise in consumer confidence and Microsoft Corp's biggest acquisition.

Takeovers helped to push the Dow Jones Industrial Average to its ninth record this month and its best start to May since 2001. Announced mergers and acquisitions involving US companies this year totalled $993 billion, 62 per cent more than during the same period last year.

The other developments in the US market include increase in reserve requirements and interest rates apart from increasing the band for its currency movement.

This has resulted in optimism that India's export competitiveness may improve as the Chinese currency is appreciating. Some fears have been raised that this may result in revived interest in yen and some unwinding of yen carry trade.

If that happens, some selling could be seen in the Indian market also. It has to be watched on Monday when the market opens.