The Sensex has advanced for the seventh straight week, its longest weekly winning streak in almost two years, giving rise to the belief that the market is now in a ‘bullish phase’. The primary cause of this unexpected and rather sharp run up is a positive tilt in sentiment fuelled by positive indicators, including strong global cues and optimism that Greece would be able to secure a second bailout package of around 130 billion-euro and robust US data, along with the large inflows of FII funds into India. Already, foreign investors have reportedly invested over to $4.9 billion in Indian stocks in the seven weeks of 2012.
In reflection India’s leading stock market barometer, the 30 scrip Sensex has climbed 21% from its December low. Ditto has been the case with almost all indices, all of which have registered sharp appreciations in the same period. Aggressive buying in consumer durables, power, capital goods, technology and banking stocks have helped the markets and resulted in the Nifty touching a seven-month high of 5600 levels on Friday.
Simultaneously, most international markets have also continued to ride high since the beginning of 2012. World stocks as measured by the benchmark MSCI All-Country World index are at their highest since August. And from the way things are unfolding, almost everybody believes that the situation could brighten for both, the economy and the markets. Yet there are concerns to be addressed.
Firstly, the present rally seems to be liquidity driven and has totally ignored the ground reality on the economic and political front. The weakness in industrial output is expected to continue in the Q4 of FY12. The IIP growth for the first nine months of this fiscal stood at 3.6% and the advance estimate of the government puts the industrial sector growth for the entire FY12 at 3.9%. This data brings back the focus on the fragile state of the economy. Further, in my opinion, the market needs to consolidate to establish a major bull trend.
Therefore, I continue to hold the view that there is a disconnect between the ‘Technicals’ and ‘Fundamentals’. While technically the indicators display the potential of a further rise, the fundamentals display weakness. In such a situation, the best solution, as I said last week, would be to book partial profits on every rise.