Currency movements to set trend

Buoyed by positive global cues, strong earnings, robust fund inflows and positive macro economic data, markets touched historic highs during the week ended.

Despite modest correction during the later part of the week, indices registered their biggest gain in six weeks on widespread buying and improving risk appetite. Both the Benchmark indices the Sensex and the Nifty closed 553 points and 185 points higher at 29,918 and 9,304 respectively.

It is pertinent to observe that while YTD returns for Sensex and Nifty are 12.4 per cent and 13.7 per cent; BSE Midcap and Smallcap indices have soared by 23 per cent and 27.6 per cent. The S&P BSE Midcap Index is up 23 per cent, rising every month this year — the best start in a decade. Too much money is chasing too few stocks say fund managers.

This can be observed in the irrational exuberance in IPO market also. The government’s focus on structural reforms and RBI measures to reduce the stress across troubled sectors and banks have provided fillip to the rally.

Buoyed by relief over the outcome of the French election, global money managers expect Europe’s economic recovery to be solid. However, rising protectionism and anti-globalisation tendencies are a cause of concern.

Near term direction will be dictated by currency movements, crude oil prices, Q4 results and global cues. Though some forecasts have predicted normal monsoon, impact of El Nino cannot be ruled out.

For the week ahead, chartists predict trading range of 29,400-30,400 and 9,100-9,475 for the benchmark indices. Support evident at 29,650 & 29,400 and 9,200 & 9,100.