This rally may be short lived

ON MONDAY, there was hardly any excitement in most dealing rooms, even as the Sensex kept rising through the day. For one, there were no frantic buy orders from clients, as is usually the case when the market is on a boil. Quite a few dealers were tracking cricket on the dealing room television sets while many others were worried if they would still be in their jobs at the end of this month. In short, India’s victory in the Nagpur test and the spectre of job cuts clearly overshadowed the 571-point surge in the Sensex.

There was another reason why Monday’s upswing in stock prices did not mean much. Combined traded turnover (equity + derivatives) on both exchanges was less than Rs 43,000 crore — the lowest in nearly 15 months. Traded turnover on NSE’s F&O segment was a paltry Rs 30,290 crore, indicating the reluctance among traders to take a near-term view on the market.

The Sensex closed at 10,536.16, up 571.87 or nearly 6% over the previous close, and the Nifty closed at 3148.25, up 175.25 points.

If one were to go purely by provisional figures, the rise in benchmark owed much to a slowdown in selling by foreign investors (-Rs 92.33 crore), and sustained buying by the local institutions (Rs 377.66 crore).

The positive trend in world markets also contributed to the upswing. Asian and European stocks rallied after China unveiled a $586-billion package to energise its economy and world leaders urged further reductions in interest rates. At the same time, a steady flow of bad news continued to trickle in. Leading US insurance major AIG reported a net loss for the fourth straight quarter while mortgage finance provider Fannie Mae reported a record quarterly loss of $29 billion after asset writedowns.

“The market is likely to form another intermediate top before breaking the recent lows,” said a BSE broker, adding that gains were unlikely to be sustained in the absence of strong foreign fund inflows, and any significant improvement in macro-economic fundamentals.

Advancing stocks trounced retreating ones in the ratio of 2:1 while 259 stocks hit the upper end of the intra-day circuit filter, and 160, the lower end.