The week ahead will begin a reaction to dismal results from market heavyweight Reliance Industries. Even though the company has announced a buyback of shares, the price action would be sharply negative.
The short trading week (due to the Republic Day holiday on Thursday) will see the RBI taking center stage on Tuesday. There is hope of a cut in cash reserve ratio or CRR, the amount that banks have to maintain with the central bank. This is a percentage of the total deposits held by the bank. Currently, it is at 6 per cent.
The holiday on Thursday means that the January 2012 derivative contracts would expire on Wednesday. This would see high volatility but the bias would be positive.
The options data suggests expiry above 5000 on the Nifty. Technically, the market is making an “Inverted Head & Shoulder” pattern, which is considered very ‘Bullish” and the right shoulder being formed closer to 5100 on the Nifty.
A breakout above the 5100 level could take the Nifty all the way up to 5300 in the near future.
Another factor adding momentum is the sharp appreciation in the rupee. The equity and debt markets saw a net inflow of almost $1.3 billion. The sustained FII buying is also telling that the market has got heavily oversold last month and that the strategy of “selling the rallies” has now changed to “buying the falls”.
Also, the market is ignoring issues related the Eurozone debt crisis.
The outperformers of the last week were the Bank Nifty, which was up 6 per cent and the Reality Index which was up 9 per cent. This week we could see some much needed consolidation and the Nifty could trade in a band between 4900 and 5120. The sharp rally has caught most by surprise and has made this January the best in many years.
Factors to watch:
RBI Policy on Tuesday
Eurozone debt crisis with Greece debt holding center stage
Major Results: Kotak Mahindra Bank, Maruti Suzuki, Larsen & Toubro, Sterlite, Cairn India, Yes Bank, Idea
Derivative contract expiry on Wednesday
(Sanjeev Bhasin is an independent investment advisor based in New Delhi and an expert on NDTV Profit’s daily show ‘Buy or Sell’).