Positive global cues hold promise

MARKET WATCH

The global cues look positive at this point of time. The US markets closed significantly higher on Friday. The Dow Jones climbed by 205.01 points, or 1.6 per cent, to 13,450.65, led by oil and technology sectors. The IT shares rose on expectations of better quarterly results. The strong retail sales and inflation data prompted the investors to buy shares in the penultimate week of the year.

Consumer spending in the US rose in November as incomes grew and shoppers took advantage of early holiday discounts. The bigger-than-forecast 1.1 per cent rise followed a revised 0.4 per cent gain in October, which was more than US commerce department estimates. The domestic markets are likely to be firm, thanks to the positive cues emanating from the US. But the impending derivatives expiry could lead to volatility.

The prevalent optimism should lead to a comfortable roll-over of long positions. This would be aided by the fact that the Nifty PCR is at a comfortable 1.08 and the market wide PCR is 0.25, according to a derivative analyst.

The implied volatility has also declined from 72 to 65, which again is a positive indicator for the immediate short term. There is a possibility of increased volumes due to the year-end factor and F&O settlement. The participants, however, do not expect the Gujarat results to have any material impact.

The week is likely to witness stock specific action, specially in technology stocks, ahead of the result season next month. The FII action will be muted as most foreign investors would be celebrating Christmas and New Year. But one cannot discount the possibility of value buying by mutual funds, especially in the event of profit booking by the large clients.

The indices are testing the medium term support levels on the charts and a violation of these could trigger a large correction. The chances of a correction, however, seem remote as we are heading into the quarterly results season. Only major negative surprises on the corporate front could trigger a slide. The market will continue to remain volatile and range bound till then.

The Sensex and Nifty declined by over 4 per cent each in the week ended December 20 as foreign institutional investors (FIIs) sold heavily to meet redemption pressures ahead of the long festive period. The FIIs pulled out more than Rs 5,400 crore from the cash market and sold shares worth Rs 2,445 crore in the derivatives segment.

The Sensex registered the second biggest fall of 769 points in absolute terms last Monday in line with the global meltdown following the re-emergence of sub-prime fears. It finally ended the week at 19,162.57, a net fall of 868.26 points (4.33 per cent) on a weekly basis.

The Nifty slid 281.20 points (4.65 4.33 per cent) to close the week at 5,766.50 against the previous week's close of 6,047.70. The markets will remain closed on Christmas day.