A pullback was expected and we got that today. It may be a relief rally but relief rallies look beautiful when they happen. That is exactly what we saw today after the carnage of the last couple of days. It was really a balm for sore eyes. 850 points up, but it could have been better. It got trimmed off a little bit towards the end. At one point, the Sensex was up 1,200 points, knocking on the doors of 18,000. However, after the pull down we closed 850 points up, closer to that 17,600 mark. The Nifty put on a full 300 points today closing at 5,200.
But price is only part of the story. The real damage has been done on participation and volumes. Trading volumes have shrunk to about half of last week’s volumes. That is the other big part of the story. People are out of the market because they have been stung. Also, there are lots of complications of participating between brokers and exchanges. Margins have been hiked again and those factors might also have interfered with people participating in the market. It is not a punters playfield as it was one-week back. Now, serious investors are in the market and may be some short covering is happening. That probably was the reason rather than the large directional long positions which saw the markets go up today.
In the futures market, there were signs of unwinding using the rise that we have seen in many midcap stocks. However, many largecap sectors participated today led by the big ones like Reliance Industries and Hindustan Unilever. Power stocks, which have got killed over the last few days, have bounced back today led by NTPC, Reliance Energy, and Tata Power. We have seen real estate also spring back with Unitech, DLF, HDIL, and Omaxe. These stocks had fallen very sharply and they have all bounced back today.
Metals like SAIL and Sterlite have done well. Even technology stocks, like Satyam and TCS, bounced nearly 10% a piece. So, there is good leadership in the largecaps. But one would expect that, from the nature of fall that they have seen in the last couple of days.
On the midcap side, all the stock futures were running up very sharply today, whether it is Ispat, IFCI, RNRL, RPL, Essar Oil, Nagarjuna Fertilisers, Petronet LNG, or JP Hydro. The ones that had fallen the most, in the range of 50-70%, were the stocks, which have bounced back the most in an expected relief rally.
Some stocks did not quite participate. Stocks like Hindustan Motors, Geojit and Prime remained very weak through the day. But we have seen a big recovery in midcaps.
Interestingly, smallcaps did not do nearly as well as midcaps today, which is why market breadth is not very big. Typically, on such relief rallies, one would expect to see 8:1-9:1 kind of advance-decline ratios. But today was just about 2:1. That shows that the smallcap end of the market is still licking its wounds and has not been able to bounceback, as smartly as some of their midcap counterparts.
We have had our relief rally today. The big question is that if we move a little bit higher from here, where do we go? Does the market stabilize at a much higher band or after the relief rally is over, does it go back and test lower levels? That is something that we need to figure out over the next few days.
While Asia bounced back today, Europe left us guessing in the second half of the session, because those markets were quite weak while we closed trade. So, the global situation might still be a little iffy, but we will find that over the next few days. Those will be very important cues for us.
Expect more volatility, going forward, though the day has been good. It may get better from here. But do not rule out some more volatility in the days to come.
Source: Moneyconrol.com
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