12K missed again, but optimism rules

MUMBAI: The mood is upbeat on Dalal Street. On Thursday, the Bombay Stock Exchange Sensex touched the 12,000-mark yet again for the first time after May 17, 2006 (a gap of 86 trading sessions), fuelled by intense buying in index heavyweights. But the index failed to hold its perch above 12,000 and closed the day at 11,973.02.

Market experts say the Sensex, despite the resistance around 12,000 and an expected brief correction, will continue to inch closer to its all-time high of 12,612. But there is a hitch: if the Sensex fails to close above 12,000 once more, that could dampen sentiments and lead to a bigger correction. The Sensex had hit an intra-day high of 11,983.48 on September 6, 2006, before closing the day at 11,933.21 points. On Thursday, it hit an intra-day high of 12,003.68 before slipping 

“This is the second attempt of the Sensex to close above 12,000. One more failure could lead to a sharper correction, of say, 500-600 points. The index has resistance in the 12,000-12,025 range, but a sustained move above 12,025 could see the market rising towards its all-time high, says Deepak Jasani, head of retail research at HDFC Securities.

The better part of this rally is that the combined average traded volume of both the major exchanges has picked up considerably. It has risen to Rs 10,000 crore in the current month till date, from the Rs 8,800 crore clocked in the previous month. This increased participation indicates that day traders, who fled the markets after the May mayhem, have started crawling back. But this time they are being extra cautious - which explains the relatively slow upmoves.

“Day traders are active in the market. But they are very cautious and are avoiding the futures and options segment, mostly index derivatives. They are taking stock-specific calls in the cash market and there is an increase in the number of stop-losses these days. And even with a small fall, they are squaring off their positions unlike before, when they used to wait till the end of the day on hopes that the market would pick up,” said a dealer with a domestic broking house.

FIIs are taking it easy this time. While their net buying in Indian equity registered an average Rs 221.1 crore per trading session in August, it has come down to Rs 194.85 crore in the current month.

However, Vijay Bhambwani of BSPLindia.com feels that the market has intrinsic strength and does not need too many triggers to continue this way. “The market should go up further. It is going up technically on buying and, hence, no specific trigger is needed. This is a bull market and corrections at any time will be very small.

“If the Nifty closes above 3,495, it could go up by another 2% in four-five trading sessions. The downside of the Nifty is limited to 3,300,” he says.

Geopolitical tensions may have eased and global economic factors have started showing signs of stability, much to the relief of players. But a comparison of the derivative and cash market during the last week reveals that short-covering has amplified the gains in indices. The Nifty future, which quoted at a four-point discount to the spot market as on September 7, 2006, was on a par with the underlying index on September 14, 2006, as investors covered their short positions in a rising market.