Weekly market update: domestic sentiment still driving rally

>> Friday, April 10, 2009

This three day trading week saw further gains for the Indian markets, which seemed to ignore a mixed week elsewhere to continue on their upward path. FII inflows were positive in the early part of the week but the real driver of the rally remains the domestic players whose positive sentiment is continuing unabated.

Monday was a positive day globally as the major indices rallied and the Sensex gained 1.8%. Tuesday saw no trading but on Wednesday the markets bucked the global trend as the Sensex advanced 2% while losses were seen almost everywhere else.  Not least in the US where profit booking dragged the Dow down over 2%. Thursday was flat, following a morning rally and afternoon sell-off. The Sensex ended the week on 10,805 up 456 points or 4.4% for the week. The Nifty closed on 3,342, up 131 points or 4.1%. 

The big gainers this week have again been Realty, Metals and Banking with Capital Goods and Infrastructure also gaining ground, including Reliance Industrial Infrastructure which jumped a massive 33% in Thursday trading. The mid cap and small cap indices also had a good week as buying interest continues to increase in companies outside the benchmark indices, indicating a general increase in risk appetite amongst investors. This weeks advance means gains from the previous lows are now approaching 30% and the markets stand at a 6 month high going into voting season.

Other domestic news saw WIP inflation fall again to 0.26% (although CPI remains much higher) and the Index of Industrial Production (IIP) come in at -1.2%. Neither was a huge suprise and had minimal impact on the markets mood. Neither did the announcement that the RBI has monetised 1.5 lakh cr of government debt, increasing the money supply and reducing the need for debt to be issued, but as some analysts have pointed out risking future inflation.

With the market at least acting like it has priced in the worst of the slowdown, the big tests coming up are earnings season and the election. Q4 resuls which beat, meet or are not a great deal worse than expectations will probably support the belief that the worst news is already priced in and may fuel a continuation of the rally. 

However, uncertainty about who will be returned to power will loom heavy throughout the last weeks of April and most of May. This will probably increase volatility and a may reduce buying interest until a government is returned. The mood however appears to be positive for the coming week.

Post originally published on moneyvidya.com