Caution Alert To Investors Amid Global Uncertainty

The March 20-26 period saw the unprecedented rally continuing for four more days before sanity returned. Markets then corrected themselves and fell sharply on the last day on Wednesday. This was also the day prior to expiry of March futures. The kind of volatility witnessed and gains registered in such a short time, make this rally somewhat unique. Something witnessed after about five years in terms of gains and time. In terms of a March rally, where it is the last month of the financial year, it has probably happened after close to two decades.

Markets gained on four of the five trading sessions and lost on one. BSE Sensex gained 1,839.45 points or 2.44 per cent to close at 77,288.50 points, while Nifty gained 560.90 points or 2.45 per cent to close at 23,468.50 points. This rally has seen all segments perform irrespective of size. Therefore, large-cap, mid-cap and small-cap all participated in the rally. All sectors contributed to the rally as well.

Dow Jones gained on four of the five trading sessions and lost on one. Two of the days, on which it gained and the only day it lost, could be said to be sideways. Dow gained 1,006.19 points or 2.42 per cent toclose at 42,587.50 points.

The highs made on Tuesday (March 25) were at 78,741.67 points and at 23,869.60 points. This makes the rally from the low of 72,633 points, a shade over 6,100 points. Nifty made a low of 21,964 points. It rallied 1,900 points and all of it in a mere 14 trading sessions. Stupendous, unprecedented and partially unbelievable, considering that none of the fundamentals have changed.

The rally is too much and too fast. As far as FPIs are concerned, they have done some short covering considering the momentum in the markets, but their stance remains negative. It is difficult to believe that they have become bullish on India as yet.

The highs would act as strong resistances going forward while levels of 23,200-23,300 points wouldact as support. This would correspond to levels of 76,600-76,900 points on BSE Sensex. If these are violated, then next levels would be at 23,000 and 76,000 respectively. Considering that the nexttrading session would be March futures expiry and currently bulls have a very strong upper hand with a lead of 923.45 points or 4.10 per cent with just one day to go, there is no way that the bears can domuch.

In the March 27- April 2 period ahead, we have a trading holiday on Monday (March 31), which would put pressure on the market when we close for an extended weekend. The financial year would also end on Thursday (March 27). In the days leading up to the April 2, Donald Trump the US president is set to announce the tariffs against the world. What repercussions this would have on global trade and how countries and global markets would react is a million dollar question. It makes sense to go slow on markets with just a couple of sessions left and allow markets to settle down.

The strategy would be to limit trading if any to the large-cap space as this 14-day rally has brought valuations in mid-cap and small-cap sectors back to uncomfortable levels. With nothing having changed this is worrisome. It would be best to look at markets from the sidelines and only do trades in case there is large movement in either direction in the large-cap space. Trade cautiously and take advantage of the festive holidays coming up of GudiPadwa and Eid-ul-Fitr on Sunday and Monday, respectively.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)