Wait till ‘Rajan’ strikes

Buyers may go for strong shares having individual merits

The Rajan effect on the stock markets continued to prevail in the first half of the week under review. Sensex reached a recent new high of 20056 on Wednesday, and the uptrend in the stock markets was coincided or rather a result of the firming up of the rupee and supported by other factors like the US attack on Syria besides improved car sales and increased IIP numbers as also the softening of crude prices in the world markets.

A small fall in the inflation rate and positive cues from the world stock markets too helped the market sentiments to remain positive.

Sensex which had closed the previous week at 19270 opened the week under review at 19448 with a huge gap on an upside as the markets observed a holiday on Monday on account of Ganesh Chaturthi. After opening with a huge upwardly gap, it ran up to close with a whopping single day gain of over 721 points. Such a huge gain prompted many investors and the bull operators to book profits on the following day. On Wednesday, it managed to rally up to the week's peak of 20056 but failed to retain the late gains as the Indian currency once again slipped a bit.

The Indian currency then fell a little on Thursday, and transpired increased selling mostly in blue chip and A-grade scrips that resulted in a bruise of nearly 216 points that day. Friday was marked with yet another loss of 49 points to the most followed benchmark indices, the Sensex. The market barometer thus closed at 19732 with a weekly gain of 463 points and thereby made the second successive week a bullish one, albeit with slowing of the pace. However on both the days of bearish trend, the Sensex was well supported at 19676. This level may hold in the new week also if the markets fall further down merely on selling in the nature of profit-taking.

Although the factory output numbers have been better and car sales have increased in July, the sticky inflation is still a big worry for the markets as in that case, the Reserve Bank of India will have to consider this issue too with an ample importance when it meets and reviews the monetary policy at the end of the instant. Whether the new governor Raghuram Rajan obliges trade and industry and also the finance minister who has already hinted at it in the preceding few weeks, with an interest cut or not, is to be awaited eagerly by the market-men.

Besides the uncertainties about the Reserve Bank's stance on interest rates, the second quarter advance tax numbers will also have the most impact when out, may be on Monday of the new week opening today. As estimated by stock market analysts, the advance tax payment numbers would most probably be lacklustre and hint at more cautious view for the near term trend. Even the chief economic advisor to the prime minister, C. Rangarajan, has hinted at a worry some GDP growth of 5.3 per cent instead of 6.4 per cent earlier, for the current fiscal.

The firming up of the rupee in the last couple of weeks also may pave a way for a correction as the demand for the dollar is going to increase with the world crude oil prices firming up again. Although, the proposed attack by the US on Syria has been averted for the time being, it has not been completely put off.

The government which has just introduced poll winning strategies by passing various bills aimed at winning the hearts of the masses raises subsidy burden. With the main opposition, BJP, naming Narendra Modi as their Prime Ministerial candidate, the Congress, is feared to come out with more money spending ideas in the days to come and make it difficult for the next government to do without increasing of tax burden when presenting the next Union budget.

Thus, though the markets have displayed positive tendency in the last couple of weeks, after the change of the guard at RBI, the uptrend, without a support of fundamentals, may not sustain for long and the general trend could not be expected to be bullish all the way throughout the rest of the month of September, the last one of the bullish season. However, even during the uncertain times, a few fundamentally strong shares having individual merits, might continue to shine and the prospective buyers of equities should wait till they separate out wheat from chaff when the advance income tax payment numbers and also the half-yearly performance numbers are disclosed. This could be possible in and after mid October, and till then just wait and watch!