Sunday, February 10, 2013

Will the pre-budget rally materialize?

The range predicted for February was 5850- 6200. We are about to test the lower end of the range. Will the markets make a new high? What will happen in the year 2013. Let us try and explore a few options.

1. The liquidity in the markets is being drained out by the Government Offers for Sale. NTPC itself was worth about 10000 crores. The Domestic Insititutions have been selling to raise funds for these offers.

2. The FIIs have bought around 5000 crores in the last few days of February. This to go with the FII buying of 19000 crores in January. The DIIs have sold about 21000 crores in the corresponding time period. The markets will rally only when the DII selling stops.

3. The Growth Rate by CSO is shown around 5 % for FY 13. Historically, the growth rate has been revised upwards by about 0.5 % seveal times and the Fiance Minister is right when he expects final figures around 5.5%.

4. The Government has shown the will to move forward with economic reforms. The GMR-Changi airports talks re-opening and the Jet-Ethihad deal are clear indications of this.

5. The crude oil prices have climbed back to 119 dollars, unless this eases up, the Indian economy faces tough times.

6. The market discounts everything 6 months in advance. The current GDP figures are all factored in. I expect the markets to rally in the first half of this year dependig on the budget.

7. The budget will be an indication of when the elections will be held. If it is not a populist budget and a reforms oriented budget then the markets will rally.

8. Technically, 5815-5900 is a strong support zone and if this range is held, then the markets can rally.

The strategy remains simple, stick to blue chip stocks, accumulate at lower levels and start part bookig of profits at levels of 6100-6400.

I do not see the markets breaking 6112 in a hurry, but for 2013, I definitely feel we will see a higher high than 6112.

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