Market setup points to further rally

It was the expiry week and surprisingly it was all smooth sailing. Markets gained on all the five days with Monday and Friday contributing the bulk of the gains. Friday was a special day as it was the first day of the May futures series and stocks across the board gained.

BSESENSEX was up 1,457.38 points or 2.44 per cent to close at 61,112.44 points while NIFTY gained 440.95 points or 2.50 per cent to close at 18,065.00 points. The broader markets saw BSE100, BSE200 and BSE500 gain 2.44 per cent, 2.53 per cent and 2.53 per cent respectively. BSEMIDCAP gained 2.61 per cent while BSESMALLCAP was up 2.42 per cent.

The Indian Rupee gained 27 paisa or 0.33 per cent to close at Rs 81.82 to the US Dollar. Dow Jones gained on three of the five trading sessions, losing on the remaining two. Dow was up 289.20 points or 0.86 per cent to close at 34,098.16 points.

The US FED would be meeting on Tuesday and Wednesday the 2nd and 3rd of May for their policy meeting where it is widely believed that rates would be raised by about 25 basis points. The street also believes that this would be the last rate hike since they started happening over a year ago. There would be a pause hereafter. Markets in the US could have a sharp reaction in either direction post announcement on Wednesday.

The offer for sale from Mankind Pharma Limited received excellent response from institutional investors for its issue of 4 crore shares. The overall issue was subscribed 15.32 times. QIB portion was subscribed 49.16 times, HNI portion was subscribed 3.80 times and Retail was subscribed 0.92 times. There were 4.62 lakh applications.

The IT sector is under pressure and latest results from Wipro support this argument or thinking. The revenues for the year ended March 23 were at Rs 90,487 crore against Rs 79,093 in the previous year. Profit after tax was Rs 12,418 crore against Rs 13,370 crore resulting in lower profits and a pressure on margins. To prop up the share and market sentiment, Wipro has announced a buyback of 26.96 crore shares at Rs 445 against the market price of Rs 385.15, a premium of Rs 59.85 or 15.5 per cent. This could in the short term provide solace to the share price but the performance is below expectations and the company is facing huge margin pressures.

Over the last four weeks markets have rallied and consolidated at higher levels and digested the gains. They seem poised and well set to continue their upward move for some more time. Even if they are not headed substantially higher, the mood has turned optimistic and markets would trade in this region allowing them to create a new higher base. One needs to be cautious at this time as there would be sector and stock rotation with different stocks moving at different times.

The markets have resistance at slightly higher levels of 18,050-18,100 and at 61,500-61,650 levels. If these are crossed and sustained the next levels would be at 18,350-18,400 and at 62,400-62,550 points. On the support side, levels would be at 17,600-17,650 and at 59,700-59,850 would act as strong supports. The next level of support would be at 17,300-350 and at 58,800-58,950 BSESENSEX.

The week ahead has only four trading sessions as Monday is almost a global holiday. The trading strategy would be to ride the rally and trade in stocks which are declaring results or have declared their results. The action is all shifted to midcap and Smallcap stocks. Yet another positive for the market is the fact that FPI's have been buyers in the market over the last week. How long this trend continues would also determine the extent of the rally in the market.

While the mood is optimistic and indicators point to a rally, things could turn around as quickly as they are moving up. One needs to be cautiously optimistic in the markets and trade with caution.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)