Markets at crossroads - the week to decide medium term direction

NEW DELHI: Markets in the week gone by began with a trading holiday. At the end of the week, they had lost on two of the four trading sessions, having gained on two. They ended with minor gains but are indicating that there could be a change in trend if markets are able to gain from here and also defend their support. Just early indications but the possibility is opening up. BSESENSEX gained 167.22 points or 0.25 per cent to close at 65,995.63 points while NIFTY gained 15.20 points or 0.08% to close at 19,653.50 points.

The broader markets saw BSE100 gain 0.05 per cent while BSE200 and BSE500 lost 0.10 per cent and 0.02 per cent respectively. BSEMIDCAP lost 0.81 per cent while BSE SMALLCAP was up 0.79 per cent. Very clearly the breadth is yet to move with the benchmark indices.

The Indian Rupee lost 20 paisa or 0.24 per cent to close at Rs 83.24 to the US Dollar. Dow Jones lost on three of the five trading sessions and gained on two sessions. At the end of the week, Dow Jones was down 99.92 points or 0.30 per cent to close at 33,407.58 points.

In primary market news, we saw three listings during the week. The first to list was JSW Infrastructure Limited which had issued shares at Rs 119. The share had a stellar listing and closed on debut at Rs 157.30, a gain of Rs 38.30 or 32.18 per cent. By the end of the week, they gained further to close at Rs 171.60, a gain of Rs 52.30 or 44.20 per cent.

The second share to list was facility management company, Updater Services Limited, which had issued shares at Rs 300. The share is still struggling to close at or above its issue price. The share listed on Wednesday and closed at Rs 283.85, a loss of Rs 16.15 or -5.38 per cent. In the remaining two days of the week, it gained marginally to close at Rs 285.40, a loss of Rs 14.60 or -4.87 per cent.

The third and final share to list was Valiant Laboratories Limited which had issued shares at Rs 140. The share which listed on Friday had an excellent start and closed at upper circuit. The share closed at Rs 169.05, a gain of Rs 29.05 or 20.75 per cent.

It appears there is a brief hiatus in the markets as far as primary markets are concerned. Its more to do with two reasons, firstly that the validity of documents with March results or financials is over for purposes of bringing IPOs. The second is investors consider this period inauspicious and refrain from investing in IPOs. Whatever be the reason, the break is well appreciated as the pace of IPOs had become a bit too much. September saw as many as 11 issues list on the main board and there have been as many as three listings in October so far.

RBI in its monetary policy review kept key lending rates unchanged on expected lines.

In global news, there was a sudden firing on the Israel-Palestine front which had led to a declaration of war. One does not know what would be the developments of this war and how things would shape up. However, in the short term it's one more uncertainty in global events.

SEBI is looking at the possibility of allowing trading in fractions of shares. When this becomes operative is not yet certain but would allow people to own shares which are expensive in absolute terms. Say for example an MRF which trades at Rs 1,07,500 or Page Industries which trades at Rs 39,400. This will bring about affordability in ownership of a different kind. Early days but distinct possibility.

The markets seem to be at crossroads and need to decide where they are headed. In the week gone by, they broke crucial support of 19,600 on NIFTY, made a low at 19,333 on Wednesday the 4th of October, and rebounded quite smartly. They made a high of 19,675 points on Friday and closed at 19,653 points. The area of 19,600 to 19,650 is an important zone and becomes critical for markets going forward. There are two distinct possibilities here. The first which indicates bearishness is that we fail to sustain these levels and after some upward movement break 19,600 levels decisively. Go below 19,200 levels and continue downwards.

The second scenario which is bullish and yet to fully unfold is that we build from these levels upwards. In the process the first hurdle upwards would be 19,825-19,850 and then 20,200 levels. What would happen ultimately, your guess is as good as mine currently. The immediate requirement is that we should cross and sustain 19,850 without breaking 19,600 levels. If this happens, the fact that FPIs are currently net sellers for quite some time, may be forced to become buyers and cover shorts.

The trading strategy for the week ahead would be to continue to sell on strong rallies and buy on sharp dips. We could be in the midst of a trading market with the range expanding. Take advantage of intra-day swings.

Trade cautiously.