Sustained uptrend likely

Stocks of small, medium sized banks are likely to go up in medium term

Driven by banking sector stocks, especially after the news of a merger between Kotak Mahindra Bank and ING Vysya Bank, the 30-scripBSE Sensex and 50-share Nifty advanced to newer peaks before ending the week at new closing highs. Both the indices went up one percent to close at 28335 and 8477 respectively.

The mega merger in banking sector also led to a rally in the banking stocks. Consequently, Bank Nifty crossed 18,000 mark for the first time in history. The BSE Sensex, however, managed a weekly gain of just 288 points.

But the week under review began on subdued note on global cues. The news of the Japanese economy turning weak again was a negative factor for the global economies. No sooner the global markets came out of the Japanese shock than came the news from China that its economy was turning into a mess as its PMI (the Purchase Managers Index) plummeted further down. The job data released by the US's statistical department too was not very promising.
Therefore, the foreign institutional investors (FIIs) slowed down their buying in the Indian stock exchanges. The slowed down in FII buying coupled with frantic dollar purchases by Indian importers weakened the rupee value further down to a low of Rs 62 which was yet another shocker to the markets. But despite all these and other negative factors, the markets remained positive throughout the week and the BSE Sensex in three of the five trading sessions, hit successive newer peaks with last trading day on Friday scaling to a life-time high of 28361, before closing 28335.

The news in the latter half of the week turned gradually positive. The Japanese government announced fresh elections and took steps to mend the plummeting industrial activity by implementing the sops. In a surprise move, the Chinese central bank came out with an interest rate-cut to spur growth. The European Central Bank also signalled that it would pump more money into the economies there.

All these moves not only helped their own stock markets but also revived the hopes in India that the Reserve Bank of India will have to follow suit and cut interest rates. Thus, the merger of the two banks coupled with revival of rate cut hopes had not only helped banking stocks to zoom, but also took the indices to new highs.

The week commencing from today is a crucial one as the November series of derivative contracts will end and new, December series, would start. Since the bull operators in futures and options trades have their pockets full of money due to elevated prices of forward group equities, they are unlikely to square off their long positions. Most of the bull operators are expected to carry forward the outstanding positions to the new, December series, which means the bear operators will have to either rush for covering their short positions or pay huge charges to the bulls. The government is also expected to announce the GDP numbers, which are likely to be better than the previous comparable ones and thereby boost the market sentiments up. From today onwards, the winter session of parliament is also scheduled to commence and transact the most important bills like insurance bill and also possibly GST bill. In all probabilities, most of such bills are likely to get Lok Sabha nod, thereby sending markets further up.

Since the markets have closed just near the historical highs and hopes of a rate-cut have revived, a sustained uptrend is most likely to prevail in the new week and therefore, those who are already holding long positions in forward group equities should not be in a hurry to off load. The long-term trend is still bullish and many small- and mid-cap shares are likely to appreciate substantially over a period of time. Therefore, those investors who have the feeling that they have missed the buying opportunity, can indulge into buying, but only on seeing positive signs in economic reforms and interest rate cut. The stocks of small and medium size private banks jumped up last week on merger talks and are likely to go up substantially in medium-term and therefore, they should be given top priority for buying.