We saw a very eventful week last week with markets and most stocks touching 52-week high for a change. The results of elections were unexpected, or so we were made to believe during elections by political pundits that there would be a fractured verdict. As a result the market saw for the first time in its history a day of upper circuit! Most retail traders I spoke to, seem to have sold off their entire portfolios on Tuesday at some profit in the belief that the opportunities may come in the future to buy on dips.
As things stand today, I dont believe that the market is going to go down significantly at least not till the budget is over. For one, there is no foreseeable bad news. Most data that was earlier a cause of concern is either a non-event for the market or has come down to manageable levels. FII purchases throughout March and April have been strong and continue to be in May. Rating agencies are waiting on the sidelines to get some clues on economic measures and reforms that the government is likely to implement. Right now a lot of action in the market will be based on political outlook e.g allocation of portfolio to various ministers. Does Mr. Montek become Finance minister (likely very positive for markets), what is the outcome from DMK? On the other hand, RBI's clarification that no more fiscal stimulus is required would also be treated as a positive (a policy action that is however, controlled by the govt. not RBI).
In technical terms, there is likely to be resistance at 4450 levels while one needs to rethink about taking long positions if Nifty breaches the psychological 4000 barrier. RSI does imply that we are in an overbot market. However, political factors are likely to play a significant role than technicals this week. Trading on the Nifty is likely to be tricky this week and I would recommend taking stock specific positions instead. Stocks that are likely to benefit from govt. budget are likely to be movers e.g. power sector, aviation, OMCs, autos. Many of these have already seen some up moves. Dollar-rupee exchange rate moments should be watched out for as further rupee appreciation without RBI intervention would be negative for IT sector. The IT sector has already lost some of the early gains made last week. RBI is likely to defend the rupee at current levels so that it benefits exporters. So remain neutral on IT sector.
