The Hindu Business Line : `Support seen at current levels'

THE stock market is expecting a corrective rally this week. According to brokers and analysts, whether the rally will sustain till the end of the week is a matter of conjecture.

Mr Vivek Mahajan, a broker-analyst, said a smart rally in the Sensex stocks might pull the index up by around 80 points in the first couple of days. For the Nifty, the gain could be around 30 points.

Mr Mathew Easow of matheweasow.com also predicted a technical correction early this week. However, in terms of points, Mr Easow felt the Nifty could possibly shoot up by 40 to 50 points.

The negative sentiment that was witnessed last week due to reports of delayed monsoon in the central and northern regions was described by some of the market players as over-reaction. "No doubt, the operators have liquidated their over-bought positions. However, that does not mean they will not re-enter at lower levels," Mr Easow observed.

In a panic situation last Friday, no reasoning worked. A section of operators and bargain hunters is likely to utilise the opportunity. As the fear psychosis in the domestic market is partly triggered by erosion of investors' confidence in the US, European and the Asian markets over successive balance-sheet blues coming to the fore in the last couple of months, the near-term forecast has become a bit tricky.

Technically, both Sensex and Nifty are around their historically strong support levels. For the Sensex, the next support level lies around the level of 2900 points. "The major indices have been in the intermediate downtrend for the last few months, the technical parameters are still low," opined Mr Mahajan. But he felt that a real trend reversal could not be ruled out in the short term.

Many stockbrokers and corporate managers felt the politicians might have overplayed the drought card in the last fortnight. Mr Y.C. Deveshwar, Chairman of ITC, went on record on Friday that the soyabean crop in Madhya Pradesh and Karnataka, has not been affected so far. The company is significantly involved in agri-initiatives in certain central and southern States. Of course, he did not comment on the future possibilities.

The common perception among the broking community is that it may not be a bear market. But the market players are unanimous in their view that sentiment for technology stocks is down. The results of some of the top companies in this sector and the announced profit guidance bear this out. The price pressure is still on, depressing the prospects of any improvement in profitability in the medium term for the domestic software companies.

"On the contrary, the old economy heavyweights such as Tata Engg, Tata Steel, Grasim and ITC have come up with much better results," Mr Easow pointed out.

Sectorally, the outlook for steel, hotels and certain chemicals appears positive. According to Mr Easow, the petroleum stocks are likely to fare well this week. "The stance of the Ministry of Disinvestment on the proposed public issues for BPCL and HPCL may prevail over that of the administrative ministry, paving the way for fast and smooth divestment," Mr Easow felt.

"The lifting of negative travel advisory by the US has turned the sentiment for the hotel stocks positive," said a NSE broker.

According to Mr Mahajan, the pharma sector generally shows downward technical disposition with the exception of GlaxoSmithkline and Novartis. "Dr Reddy's looks weak while Ranbaxy may remain range-bound," he felt.

The steel and auto stocks may see some downward correction, but, according to Mr Mahajan, the textiles counters are poised strong. "According to technical charts, there is still no signs of strength in the top FMCG stocks except for the Britannia and Colgate Palmolive counters," he added. In Mr Mahajan's opinion, among the engineering stocks, ABB appeared to be technically strong.

(Mr Mahajan disclosed that he held some shares of Glaxo, ABB and Colgate Palmolive.)

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