Bout of consolidation ahead

MUMBAI: The Sensex snapped its winning spree to breach the previous week’s bottom along expected lines, but then rebounded to almost restore parity, thereby giving an upward key reversal on the last trading day of 2005.

The index bounced back smartly from its intra-week low of 9020.80 on December 27, 2005 (our previous column said the Sensex has strong support at the 8960 - 9034 levels) and again tested the 9400 levels.

The Sensex has now attempted to overcome the 9400+ levels during six of the last ten trading sessions.

It needs to decisively overcome the 9400+ levels (to close above the 9423 level for at least two trading sessions on higher volume) for a further upside to materialise.

It was the year of the markets with the benchmark Sensex gaining 42.3% during calendar year 2005 supported strongly by overseas fund inflows pegged at a record high of $10.7 billion on December 30, 2005.

The Sensex seems to be in a consolidation phase after a heady rise in the previous nine weeks, making it a welcome, overdue and healthy correction.

The relative strength of the market can be gauged by the fact that despite the quantum of the preceding rise, the timewise and pricewise retracement of the Sensex has been of minimal proportions until now.

The index has remained volatile due to the close of the derivatives settlement,while it remains to be seen whether this consolidation / correction continues for some more time or reflects some positive price action this week.

The 8960 - 9034 level continues to remain the source of strong intermediate support. The BSE sctoral indices have shrugged-off all the nonchalance and have responded to the Sensex’s positivity. Nearly all the sectoral indices have either given upward key reversals or bar reversals on the weekly chart, indicating a further upside this week.

The BSE Bankex has mirrored the Sensex’s sentiment and despite some sharp early weakness, has managed to end in positive territory to given an upward key reversal on the weekly chart, while a close above the 5180 level is vital to a further upside.

The BSE Consumer Durables Index also staged a recovery to end sharply in positive territory. This could have twin implications - one being an upward key reversal on the weekly chart and the second being the probably exhaustion of its four-week corrective phase, indicating a further upside.

The BSE FMCG Index has also moved in line with the market to post an upward key reversal on the weekly chart but has just hinted at outperformance. It indicates the possibility of a further upside especially above the 1655 level.   The Great Indian Bull Run seems to have taken a small breather, while the immediate price movement seems to be hinting at positive action this week.

The 9423 levels holds the key to a further upside in the Sensex. Domestic mutual funds have fared very well in 2005, registering a 37% growth in terms of assets under management.

According to Value Research, the Indian mutual fund industry has Rs 204,519 crore worth of assets under management as on November 30, 2005.

Data also show that equity tax planning (49.1 % returns) and diversified schemes (45.5 %) fared well in terms of annual returns, during the year 2005, led by fast-moving consumer goods (63.4 %) and technology sector (49.9 %) funds.

A section of fund managers with foreign fund houses says the secondary markets could slow down in coming weeks due to domestic fund redemptions (with the markets at a record high) and the issuance of new equity paper (through the primary market) estimated at Rs 200-300 crore in the coming months.