Why the current market uptrend is here to stay

Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty?

Moneycontrol Bureau

Just as it looked like the indices were running into resistance after yesterday's big rally, markets managed to move ahead spurred on by strength in the European markets. The Nifty extended its stay above that 5,200 mark with a 36 point gain while, the Sensex piling on 107 points to close trade at 17,300.

Barring the Monday's shake off, the market has not had very many bad days in this month. 

And one can see where it is coming from. European markets were trading strong today-most markets there up over a percent. That is where there is nervousness in terms of newsflow. The global capital situation is such right now-as also indicated by the screen-that there must have been some largecap buying in many of the sectors like autos, select metal stocks and even some of the banks.

Therefore, liquidity and global cues being what they are, one wouldn't just want to bet against the market until it tells you that it's done with this upmove.

And that might not happen anytime soon. Technical analyst Sudarshan Sukhani of s2analytics.com believes the uptrend is like to continue. "There is no sign that the market is reversing. There are no reversal patterns on the charts," he said.

"We have been taking profits in banks and today in autos, some of the things that we got into in December when we felt that the rate cycle was changing," portfolio manager PN Vijay told CNBC-TV18.

"We are moving more and more into cash last few days. My own sense is this market has gone up extremely sharply. We went up about 13% in January and February it's continuing. So, at some stage it needs to take a pause because the market has been driven by flows - no doubt very strong flows - and good European cues. On the ground, the Q3 results have been very mixed, and therefore the underpinning of the fundamentals don't justify this sharper move. I am envisaging that we will have a correction very soon," Vijay said.

The best part about today's upmove was the way midcaps performed. Last couple of days, around the 5200-mark, the breadth was deserting the market for a bit and that was leading to concerns that maybe the narrowness of the market might indicate that it is time for a reversal. But today, the way the midcaps and smallcaps have performed - come back by beaten down names like Crompton Greaves - tells you that traders are still quite interested and that's typically the sign of a market where people are left out.

And there is more good news! Sudip Bandyopadhyay, MD & CEO of Destimoney Securities feels there is a very high probability of money moving in further into India. European investors are in kind of a pause mode till this entire issue gets resolved. "The kind of money ECB has made available to European Banks to kind of play in the bond auctions of multiple countries is huge. That is resulting in the bond auctions going through smoothly at much improved yields compared to what it was happening in 2011-end."

"That, very clearly, shows that the liquidity available in the European market is huge. It is just that the investors want to see the resolution to the Greek problem. All indications are that it's almost resolved, and they have to resolve, they have very little choice but to kind of close the lid on this problem by end of this week. So, once that happens investors will start coming into India in a big way," Bandyopadhyay added.

But at every small correction, people want to deploy cash because they've been sitting with cash on the sidelines. And every intermediate level, which gets taken out-first 5000, then 5100, now the 200-DMA-just raises the level of anxiety amongst investors sitting on cash and they are finally forced to commit that cash.

It looks like we are in that phase of the market now where even shallow declines probably will get some more cash invested and only when that cash has got invested and the market has got quite heady about the sure shot bull market resumption, is when we might see a deeper correction.

But right now too many people are waiting for that correction and therefore the market is unlikely to oblige as you've seen intraday today. 

Sagar Salvi
sagar.salvi@network18online.com