Look for relief rallies

Look for relief rallies
Highlights

Show patience and hold on to blue chips The two 'R' factors, Reserve Bank of India (RBI) and Rupee, did...

Show patience and hold on to blue chips

The two "R" factors, Reserve Bank of India (RBI) and Rupee, did rout the stock markets successively in the second week in a row, with most of the equities trending and closing down when compared with the previous week. The sensex along with all the sectoral and segmental indices lost significantly in the week. Prior to closing with a weekly loss of 584 points at 19,164, stooped to a low of 19079 points and infused a fear in the minds of the market-men that one more bearish week would send it below 19,000, the psychological support point.

The stock markets, that generally show positive trend during this time of the year, have become vulnerable to the falling rupee for the past few weeks and the consequential denial by RBI to cut the interest rates. The seasonal buoyancy which was expected to remain in place turned out to be elusive and prices of a wide majority of traded stocks declined to recent new lows with many being beaten down severely as there were no buyers for them on the scene.

The Sensex which had closed the previous week at 19748, opened the new week at 19714 as RBI had already made its stance clear about what was in store in its monetary policy review meeting scheduled for the next day. It was therefore, due to the discouragement about a rate cut, that very few buyers dared to venture into buying on Monday.

The BSE index therefore could go up to only 19751 to quickly catch up the sliding trend that continued till it reached a low of 19079 when the markets were half an hour away from closing time for the day as well as the week. In the last half hour of trade, short-covering by bear operators helped the markets come out of the total rut and close a shade above the worst. The Sensex closed at 19164 with a day's losses of 153 points.

Market analysts were of the opinion that the banking regulator would grant any relief in the matter of liquidity But the central bank did not come with a decision that differed with most of the experts and kept the rates unchanged. Therefore, the Reserve Bank did not trigger any further selling pressure by merely not cutting the rates as the same was as per expectations only. But it was the poorer forecast about the GDP growth and possibly a further tightening of the monetary policy that was hinted at, caused the damage to the market sentiments.

Not very surprisingly, the Reserve Bank did not cut the rates merely on an excuse that by keeping the rates high, it could help the Indian currency from drowning further but the rupee did go down on the very same day of the policy review and continued to sink further until it reached an all-time new low on Friday before being floor-lifted on short-covering. The desperate government came out with more steps including more liberal FDI policy in select sectors but all in vain. Neither the rupee stopped from falling or the stock markets from drowning.

However, when all the efforts turn futile, the natural process of recovery or reconstruction starts. With rupee value getting down to new low the demand for dollars will automatically subside and with the stock markets becoming unaffordable for selling, they would automatically stop going further down. It is very likely therefore, that relief rallies in both, the stock markets as well as the currency markets, can occur either in this or the next week and once the rallies occur, the seasonal factors too would turn out to be effective. The investors are therefore advised to observe patience and hold on to their blue chip stocks.

It was the poorer forecast about the GDP growth and possibly a further tightening of the monetary policy that was hinted at, caused the damage to the market sentiments

MARKET MONITOR

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