Correction may be round the corner

The period under review from January 27 to February 2 seemed to consist of two different halves. The first saw markets slip on both the days of the previous week on Thursday and Friday. In the current week, markets gained on all the three days and it included the presentation of the budget as well.

The week began with January expiry taking place on Thursday. Markets slipped and we saw January futures lose 93.80 or 0.55 per cent to close at 17,110.15 points. The new series began on a quite note with markets registering small losses. Monday saw markets turning quite significantly and the trend just continued thereafter. At the end of the period, BSE Sensex gained 1,700.18 points or 2.85 per cent to close at 59,558.33 points, while Nifty gained 502.05 points or 2.82 per cent to close at 17,780.00 points.

The budget was all about shunning populist measures, keeping it straight and focusing on infrastructure and expecting industry to chip in with capex. There was hardly any tinkering, no major changes in customs duties and very importantly the realisation that with elections in five states this month and the next, votes will come on the basis of what you have done over the last five years not freebies announced now.

While the budget day did see one large swing in the market movement, it was by and large a straight day with the indices opening gap up of over 560 points on the BSE Sensex and 190 points on Nifty. From these levels markets gained some more for the day and remained on firm footing barring that one slip. The period under review ended with another day of solid gains which also had short covering being witnessed.

This short, but swift move saw markets fall from the highs made on January 18 of 61,475 points on BSE Sensex and 18,350 points on Nifty. By the end of the week on January 25, the low of 56,409 points and 16,836 was established. From the lows, the rally has been quite strong so far. Going forward, it would be interesting to see vwhether markets rally further or take a pause. The fact that FII's seem to have stopped selling for the last few days has also helped matters.

The budget saw the government commit to spending more on highways, five river linking projects and a host of infrastructure projects. To add to the PLI (production linked incentive) scheme for 14 industries announced during the course of the current year they added solar module by announcing a scheme of Rs19,500 crore. Incentives for new industrial units have been extended by one year. The government believes with robust GST collections of Rs1.41 lakh crore during January, the economy is well set to see a strong revival in the coming months. There resolve saw the government spend more on development and hope that industry reciprocates with capex. The multiplier effect that infra spending leads to is the focus point.

In primary market news, the listing of AGS Transact Technologies Limited saw shares lose ground on the opening day. Shares which were issued at Rs175, after opening at that price lost ground to close at Rs161.30, a loss of Rs13.70 or 7.83 per cent. Shares recovered ground today to close at Rs165.55. Coming to the markets in January 3-9 period, is the best period for markets to build on the current momentum. While there could always be some periods of welcome correction, it's now or never if the markets are to cross previous highs. The momentum is with the bulls and all seems hunky dory for them. In terms of Dow Jones movement after some correction they too have seen big gains in recent days. The fact that there will be interest rate hikes in the March FED meeting and it would be more than 25 basis points is given and discounted. Easy money selling has been witnessed and is probably over. Bond rates too have moved up factoring in all of this. Dow Jones gained over 1,250 in the last week. The trading strategy should be to play along with the markets in the coming week. Buy large cap stocks as it appears that the small and midcap stocks seem temporarily to have lost favour. Use dips to buy and sharp rallies to sell. Expect correction to happen and do not be surprised if we reach previous highs in the next fortnight or so. Trade cautiously and continue to have a war chest ready.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)