Weekly Close: 20000 conquered but will it stay ?

It was a historic week for markets. It managed to close above a big psychological level of 20000. The close at the end of the week was also above that. However, more than that, the last couple of weeks have been marked by the retail investors actually enjoying the upsides in the markets. The gains for the year had been largely limited to large caps... but it was the last couple of weeks that large caps saw profit taking but it was the mid caps and small caps which continued to flare. This week was no different though some large caps also joined the party helping the Sensex above 20000.

 

The most important event this week was the US fed cut which came as expected at 25 basis points and that in a way disappointed markets which had already discounted that. The global markets went soft and that had a softening impact on the Indian markets as well. The US Fed also indicated a plan to ensure that liquidity would be available.. but markets seem to be quite sombre. The event of the Fed cut is now over with and markets are wanting to know what next. Actually the wait is to understand whether the US consumer growth will pick up post all the efforts of the Central bank. Thats the key. Near term numbers even if they are not negative may be dismissed waiting for the recent cuts to impact. However, a bigger worry is in the form of inflation.

 

Indian markets reacted quite differently. The resilience in the Indian market was quite pleasantly surprising. Indian economy is not seen too integrated with the world economy. Sectors which had not participated or had been weak saw interest. The software sector which had seen initial interest waned and saw profit taking off on the back of worries of the US economy. The Auto sector saw interest as well but that was limited. The Auto sector is expected to benefit from lower interest rates. Bajaj, Hero Honda were the gainers. The Telecom sector was extremely volatile with Bharti Airtel first rising on hope but then falling big way on the Government ruling which will put it in a disadvantage. Clarty is lacking here still. The pharma stocks were the gainers

 

Sensex closed up marginally though. Amob the big gainers this week we had Jet +13%, Dr Reddys + 7%, Cipla 6%. Gail +9%. Glaxo +12%, HDFC +4%, HLL 4%, ITC +5%, HPCL +8%, Hindalco +13%, Nalco +18%, ONGC +4%, PNB +7%, Tisco +5 %. The losers were BHEL - 6% Infosys -5%, Satyam -7%,

 

It was a great week for our research. One company which is rarely followed, Gillette hit upper circuits and thats a big move. The company has done well under the guidance of P&G leveraging its distribution network. Valuations are too rich... but they have always been that way. The opportunity is so big that this one could go anywhere. Well its zooming for now.

 

Garnet Construction was another where we had a research note.. The company is into construction of Banglows on the Mumbai Pune Highway. Its a discovery from wow-india. There needs to be more confidence on the management. However the business model is what we liked. Do read the research here.

 

We had a research note on Sayaji Hotels as well. This is a bit risky given that its expansions are still happening and the restaurants are still in the process of opening up.

 

We had a research note on Garware offshore.. and though the business for now is quite bouyant, we are not impressed by the core competency or sustainability of profits in this business.
Technically speaking: Sensex has had a mild pullback, however it has closed above an important support of 20000. 19800 is another support and negatives could be expected if that goes. However the bias is positives and one could try long trading positions near the supports. However, a word of caution is that Sensex has made an engulfing bear pattern on Thursday and thats to be kept in th eback of mind.

 

Fundamentally Speaking: The Fed cut is out of the way and we mentioned in our note last week is that it would be best to wait till this is digested. We believe that the markets will remain a stock pickers market. Look for value i the weekness. Normally there is a Santa Claus rally in stock markets as fund managers prop up some stocks to get some better bonuses. This time too that may be on cards globally and that could help Indian markets a lot. We believe that the tone is set for interest rates to subside and that