Index Outlook

Sensex (19698.3)

The bulls, rejuvenated by the Diwali break, came thundering back last week to yank the Sensex back from a deeper correction. The Indian markets displayed remarkable resilience last week. Weak industrial production numbers for September and quaking global markets did little to dampen the upbeat mood on our bourses.

The frenzy has now percolated down to the mid- and small-cap stocks. Both the BSE mid-cap as well as the BSE small-cap indices recorded successive life highs in the last three sessions of the week. Open interest in the derivatives segment has crossed Rs 1,00,000 crore again. Stock futures comprise more than half of this build-up; denoting that the outstanding contracts could be predominantly speculative in nature.

But the up trend in the Indian markets is not showing any signs of flagging yet. Though Sensex dipped below 18800 support on Monday, it recovered from the next support at 18340, thus retaining the positive outlook for the short-term.

The move that began from 17171 trough on October 22 can now extend further, giving the medium term target of 21400 to the Sensex. The positive medium term view will be negated only on a fall below 18300.

The labelling of the waves has become easier after the assertion of the short-term up trend last week. The most obvious count is that the Sensex is charting the fifth part of the wave that commenced from the March trough at 12316. The outermost target for this wave is 20942. But a fifth wave extension can take the wave beyond the target mentioned above.

The near term outlook for the Sensex is positive and the index can move higher to 20228 and then 20495 next week.

Some nervousness can be expected in the region around 20000. But the outlook for the week will turn negative only if the index falls below 18900.

Though the technical charts continue to be gung-ho, investors need to keep a balanced head on their shoulders in this market. The situation is getting close to the one seen in April 2006 with retail investors getting hyper-active in futures segment, muted FII inflows and runaway rallies in mid and small cap stocks. Leveraged positions are a definite no-no. Stocks witnessing steep run-ups are best left alone.

Nifty (5906.2)

Though Nifty dipped below 5600 briefly on Monday, the recovery on the same day has helped to avert a medium term down trend in the index.

The Nifty has now moved close to the 6000 mark once more. The third wave of the move from 5070 gives the medium term targets of 6059 and then 6419. Once the index moves past its previous high, another sharp surge is possible.

The short-term outlook for the index would stay positive as long as Nifty remains above 5664. If 5800 holds in the early part of next week, Nifty can move up to 6119 and then 6307 in the near-term.

However, watch out for bouts of profit booking in the band between 6000 and 6050.

Global Cues

The US markets attempted a recovery on Tuesday, but lack of follow-up buying made the indices slide down again towards the weekend. The Dow Jones Industrial Average has closed below the long-term 200 day moving average for yet another week.

Though further slide is anticipated in the short-term, the medium term range for DJIA is between 12500 and 14000. The Nasdaq Composite Index is also weak from a near term perspective.

Interestingly, the Hang Seng Index and Shanghai Composite Index that have been accompanying the Sensex in the mad hurtle upward have corrected more than 15 per cent over the last three weeks.

Some of the other Asian indices in Thailand, Taiwan, Singapore and Pakistan are also correcting in earnest. The Nikkei is the fore-runner in giving early indications that the four-year bull run from the 2003 could be nearing completion.

Via Business line