These words should well sum up the activities of the Indian Stock market in the last week ended 22-May-09.
The astounding victory of the UPA government in the general elections raised the hopes of an entire nation, let alone the stock markets. The markets went berserk, as it hit the upper circuit for the first time in its history. In fact this week’s index performance was the best ever weekly performance in the past 17 years!
Most market players, including the experts, were taken by surprise. We too had anticipated a maximum of 3900-4000 of Nifty level where we suggested booking profits. The Markets however gave us another 10% as ‘bonus’!!
All in all, it has been a good week and except short sellers, all have made money. In fact, just the day before the Election results, to take advantage of the anticipated uncertainty and volatility , we , at JHAVERI, had aggressively advised all clients to create the ‘Straddle Option Strategy’ – Buy Rs 3700 Call option and Rs 3700 Put option. We are happy to report that the straddle gave more than 100% returns in the next two days of creating it.
The straddle was created at a cost of Rs 300 and most clients were able to sell the straddle for more than Rs.600/-.
Investors too were one of the biggest beneficiaries. Most of our delivery based calls in the last few weeks achieved their target returns of more than 15 – 20%. Investors holding stocks for the past few months saw their portfolios improving more than 20% in the week.
Sector wise performance has been in line with our expectation. One of the major reasons of optimism out of the stable government at the centre is that it will be able to stir the economy out of the slowdown which has set in after the western world fell in a recession. A Stable government would surely be able to take positive steps and reforms which would help the economy regain the pace of growth in the coming six to ten months.
Those sectors, which are likely to benefit more from the anticipated reforms and revival of the economy, have performed quite well in this one-week rally. The following chart provides a bird’s eye view of the sectoral indices performance (pre and post the election results)
As one would have been expected, the top performing sectors were Power (benefit of nuclear deal), Banks (expectation of reforms) , Metals, PSU (on expectation of reforms), Capital Goods and Realty.
Another notable, but anticipated, feature was the gross underperformance of the ‘defensive sectors’ like FMCG and Healthcare. The IT index underperformed mainly due to the impact of the INR which appreciated by a hefty 4.5% ; its highest weekly gain in last 13 years!
The week ahead:
Many market players call this euphoria while many other have suddenly turned bullish.
The opinions are equally convincing and equally un-convincing! The last couple of days of market movement suggest that investors are booking profits at higher levels beyond 4300 Nifty (14000 Sensex). However we also observe increased level of activity in the mid cap counters with prices rising along with volumes. Investor money seems to be shifting to the relatively undervalued mid caps as the frontline stocks become overvalued.
Till when the markets are able to sustain this ‘sudden bullishness’, is a question of time. But one thing is clear - the expectation / optimism of the market is built upon the ability of the government to implement reforms and take necessary steps to revive the slowdown – and speed will be of immense importance too.
Technically, the markets have had a gap opening during the week. This gap is a huge one and one should at least expect filling up of 50% of the gap (if not 100%) in the coming days. We advise clients to re-enter the frontline stocks at Nifty 4000-4050 levels. For the mid cap counters we suggest frequent profit booking. We shall continue to provide you delivery based calls and suggest profit booking when targets are achieved.
CA Rajiv D Khatlawala
Head of Research & Training
JHAVERI Securities Ltd.
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