Short covering drives Nifty above 5300 at end

It was a sigh of relief for the Indian equity benchmarks in the last couple of hours of trade on Friday, especially after a drubbing was seen in the previous five sessions. A considerable amount of shorts had piled up during the previous sessions - particularly after the Nifty broke the 5400 level (the major support level) - that managed to get covered to some extent today.

The 50-share NSE Nifty saw the 5300-mark towards close today - for the first time since yesterday and settled trade at 5,310, up 84.20 points or 1.61% as compared to previous close, after showing a 132-point recovery from an intraday low with the feeling that worst may be over for the time being and markets looked priced in almost everything like rising inflation, likely rate tightening by RBI in next policy meet, rise in commodities prices, various scams and a likely slowdown.

Alok Sama of Baer Capital feels the worst is probably over for India. "We have probably seen the worst run-up in oil prices. Also, I feel inflation fears here are probably over-done," he told CNBC-TV18.

However, he continues to believe that India is among the most expensive emerging markets where food price inflation remains a matter of key concern. "Also, the outflow from India is not very significant," he stated. Foreign institutional investors were net sellers this year with around Rs 6,500 crore worth of share being sold while they were net buyers in the year 2009 & 2010 with more than 2.25 lakh crore worth of shares being bought.

On the back of a fairly robust earnings growth, he feels 17,500-18,000 on the Sensex and 5,000 on the Nifty are reasonable levels to think of in terms of markets being well supported.

Financial, infrastructure, auto, Anil Dhirubhai Ambani Group and healthcare companies' shares led the support - mainly the most beaten down shares were seen huge buying interest. However, the selling remained in Bharti Airtel, Hindalco, ITC, HUL, Infosys, Tata Steel, Tata Power, TCS and BHEL but these stocks recovered from their day's low.

The 30-share BSE Sensex gained 265.57 points or 1.52%, to end at 17,728.61, after showing recovery of 433 points from day's low. However, the global markets were weak today - European markets and US index futures were trading 0.5-1% lower at the time of closing of Indian equities.

Technically, Gautam Shah, JM Financial says, the bearish continuation pattern target of 5260 & 17500 has been done, which is a positive development. However, "The reversal pattern target of 5150 & 17000 is yet to be done and hence some more weakness can be expected infra, real estate, power and the ADAG group could be on course to test their March 2009 lows," he said.

In this kind of a market, Deven Choksey, managing director of KR Choksey Shares & Securities said one should look forward to more opportunities on the buying side.

For the week, the Sensex and Nifty lost 1.6% each.

The Sensex shed about 150 points during the day, especially post the December IIP data announced. The industrial output came in at 1.6% as against 2.7% in November, which was in-line with expectations but the sectoral growth was quite disappointing.

Consumer non-durables growth was in negative 1.1% versus positive 3% and capital goods growth too came in negative 13.7% versus 42.9% (YoY). Growth in segments like manufacturing, consumer durables and mining fell sharply while electricity sector growth improved at 6% as against 5.4% (YoY).

DK Joshi principal economist at Crisil, too expressed no surprise at the numbers and said that a strong base was expected to pull it down.