Markets continued to be on a roll in the week gone by. They were led by new lifetime highs on the benchmark indices with the midcap and smallcap stocks which showed strong traction getting almost there as well.
As the market breadth continues to expand, expect the midcap and smallcap stocks and the sector to post new lifetime highs in the week or weeks to follow.
BSESENSEX gained 574.86 points or 0.92 per cent to close at 62,868.50 points while NIFTY gained 183.35 points or 0.99 per cent to close at 18,696.10 points. The broader markets fared much better and we saw BSE100, BSE200 and BSE500 gain 1.18 per cent, 1.42 per cent and 1.50 per cent respectively. BSEMIDCAP was up 2.84 per cent while BSESMALLCAP gained 2.43 per cent.
Markets gained on the first four days of the week and there was some amount of profit taking witnessed on Friday in the benchmark indices while the midcap and smallcap gained on Friday as well.
The Indian Rupee gained 36 paisa or 0.44 per cent to close at Rs 81.32 to the US dollar. Dow Jones saw the markets gain on three of the five trading sessions. There was a very sharp swing day on Wednesday in the US, when markets after being negative gained over 700 points on a net basis.
The FED Chairman Jerome Powell said at a meeting on Wednesday, "Time for easing rate increases is coming". This led to the sharp recovery and optimism that going forward in 2023, we may not see 75 basis point rate hikes. All over the world one sees, short covering being a major reason for sharp and swift rallies and Wednesday was no exception.
In primary market news, we are likely to see two road shows of companies tapping the capital markets happening during the course of the week. While they are yet to announce details and timelines, the issues would open in the week beginning December 12. These issues are expected from Sula Vineyards Limited and Landmark Cars Limited.
The mood in the market currently is difficult to explain or put down in words. There is optimism because the midcap and smallcap have started to move. There is disbelief because results have not been encouraging. Global markets are not at their best led by inflation which is at unseen levels though seems to have stopped rising and therefore Central banks have been raising interest rates. The war between Russia and Ukraine has become a never-ending affair and losing relevance as the world realises there is no short-term solution. In such a scenario, why the strong rally is a little baffling.
The only explanation for India's rally is the fact that we have had a technical breakout when we crossed the lifetime highs and are undergoing the follow through momentum from the same. How much and how far this would go is still a matter to debate. There are a few stages which the market must go through before this momentum gets over.
Firstly, this rally has to get wider and wider, with many more stocks participating. The same has started but we have quite some distance to go before it gets over. Secondly, the participation has to increase significantly and many more investors currently sitting on the side-lines would enter the market. Finally, markets would witness unprecedented volumes and volatility. Having said this, it is not to imply that there can be no other way that markets would move, but this is the broad script which is witnessed each time. Post all this getting over, markets would become extremely volatile and then become sideways after violent and volatile moves.
The strategy to adopt in such times which we can foresee, is to keep selling and booking profits in companies which have not delivered results on expected lines. Secondly, to sell those companies which have performed and are now trading at multiples which have become expensive and uncomfortable to hold. There may be a time which comes when the portfolio is knocked off, but having made money one should not have regrets. Stay light in the final stage with plenty of cash to buy on dips which will be sharp and happen without notice. All this will take time and December will be a good time to get into the oncoming and impending crescendo.
Coming to the markets in the week ahead, expect the momentum to continue and become bigger with more stocks participating. Strong support exists at the levels of 18,450-18,500 on NIFTY and 62,100-62,250 on BSESENSEX. Levels of around 19,000 and 63,700-63,800 would be resistances. Buy on sharp dips and continue to book profits as markets see plenty of whiplashes and churning. One last point, we may have a situation where the benchmark indices do not perform while midcap and smallcap do so.