A strong rally in intermediate bear market

CNBC-TV18s Head-Markets Research, Anuj Singhal: Bear market rallies can be strong, just as the bull market corrections, which can be lethal. We are in the midst of a bear market rally and given the overnight political developments with UPA winning the trust vote and crude cooling further to $ 127/bbl, chances are that we will have a huge gap up. In fact the SGX is suggesting a Nifty level of 4450, which from the bear market bottom would be 17% rally.

Over last couple of days, we have clearly seen a trend of fresh buying emerging in Nifty futures after the short covering that we saw last week. In fact in last 2 days, FIIs have added positions in Nifty futures with positive inflows.

Now the bigger question is how much can the Nifty go to in current bear market rally and what should one do. I think this morning should not be looked upon as everything has changed. We have a nice cocktail of politics and global markets this morning, so the screen would look good and tend to lead some market players to believe that the only way now is up, which may not be the case. If we are still in a bear market, then one has to be very careful about going long on rallies

But there is no harm in looking at some individual stocks now. Banking surely comes top of mind. Last night, ICICI Bank ADR surged 11% while HDFC Bank was up 8%. Clearly before the bear market began, banking was the sector everybody was bullish on and of course since then it has been the biggest underperformer. So there is a chance of a combination of short covering and portfolio buying, which might present interesting buying opportunities

DISCLAIMER: The author is not allowed to trade in equity markets including Futures and Options. His only exposure to capital markets is via shares of TV18 and Network18 granted to him as ESOPs by the company and investments in some long-term mutual funds.