Markets may extend rebounds on Jan 28

New Delhi, Jan 27: Last week saw the most volatile period in the Indian equity markets with it hitting a downward circuit, down 15 per cent, and ending the week with the biggest rally ever in its trading history.

The bloodbath started on Tuesday, January 22, as the BSE Sensex opened with a negative gap of 721 points at 16,884. The index was down 9.8 per cent or 1,716 points at 15,889. The NSE Nifty crashed over 12 per cent or 630 points to 4,578 in the initial trading hour. Trading was suspended for one hour as markets broke all the important technical and psychological levels.

Come Friday, January 25 and the story was completely different. The 30-share index, Sensex opened with a positive gap of 282.26 points at 17,504. The index traded strong on back of intense buying interest in the frontline stocks and global cues.

BSE Sensex gained 1,139.92 points or 6.62 per cent to close at 18,361.66; while the broad-based NSE Nifty closed at 5,383.35, up 349.9 points.

Tomorrow morning the markets should see a gap-up opening in the stock exchanges with a rally of around couple of points as the markets showed signs of a rebound on Friday.

Experts say the markets were looking for some confidence boosting measures and the US Federal Reserve's decision is not a concrete measure to alleviate the US problem.

Markets globally eased after the US government unveiled a provisional economic stimulus package and the Fed unexpectedly lowered interest rates by 75 basis points.

Large cap stocks like Reliance, L&T, ITC, ONGC, Reliance Energy, did well on Friday. However, the small caps did not do very well and can prove to be a drag on the indices, but the midcap segment can also see some meaningful rallies.

Analyst also believe the market has already dropped substantially and any correction, if any, has been achieved.

Nifty is expected trade in the vicinity of 5,700 by expiry next Thursday.

In the derivatives segment, most long positions have been unwound and most believe the poison is out of the system.

Open interest in January Nifty futures was down 14 per cent on Friday and the index ended at a 21-point premium to the spot. The contract expires Thursday.

The week also saw heavy participation from domestic institutional investors like the mutual funds, sitting on cash reserves, as the FII space saw as exodus of funds from the emerging markets as the appetite for risk taking lessened.

The risk taking was lowered due to string of bad news and figures, particularly with the fear of the US going into a recession, while the jury still out on the possible effect of the SocGen fraud.

Next week will be keenly watched with the Reserve Bank of India's (RBI) credit policy review on Tuesday, the US Federal Reserve's two-day meet starting Tuesday and expiry of January futures and options series on Thursday.

At its monetary policy review on Tuesday, the RBI is widely expected to lower the cash reserve ratio by 25 basis points.

The central bank is also more likely to cut its key rates as the interest rate differential between the US and India has widened, bankers said.

However, if the argument of a interest rate differential is good enough for RBI Governor Y V Reddy to go the Ben Bernanke way is debatable since the economy seems to be doing well and the inkling that a cut in reverse repo and the repo rate may not lead to a interest cut by the banks as the financial year nears its closing.

Also plenty of liquidity in the form of money from the Reliance Power IPO and Future Capital IPO will be back in the system and the effect is yet to be ascertained.

If indications are to go by, the coming week will see plenty of action as the market's look to stay in the green and shake of the chill of global uncertainties.

UNI