The battle’s won, but not the war

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The across-the-board buoyancy seen in our markets last week has brought the investors back into the bourses. The confidence is high and there is a general feeling of having been left out. This augurs well for the markets.

But, is this a signal that the markets have bottomed out and are in step to reach substantially new highs later this year?

We will come to the possibilities of new highs later, but a bottom seems to have been touched. After reaching a low of 15,332 points in January, the Sensex went on to slip further to be at 14,667 in March. But the Nifty did not. The Nifty’s low of 4,448 points in January was not breached further and in March, it bounced back from 4,468. The strength shown by the Nifty was the first signal of a bottoming out process. A mark above 5,020 points in April was the confirmation of a higher intermediate top, which was the first baby step to recovery.

I think it is premature to conclude that new highs will be touched in the near future. The Sensex will have to perform a few tricks before we can say the line is clear. The first is that, it will need to close above the 18,895-point mark, the high point of that was achieved on February 4 and 5. A similar level in the Nifty is 5,550. For the markets to move up, it is essential that both the indices close above their respective required levels.

Fundamentally, there are a lot of concerns. Inflation is the concern number one. The issue is important as we have a government that is in an election mode. Elections have been lost merely on the price of onions and here, you have the entire food basket seeing high inflation, not to talk of steel and cement. The government will do whatever it takes to tame the inflation tiger, which will mean some sectors will be badly hit.

The second issue is that, the fundamentals are deteriorating. Of the 28 stocks in the Nifty that have presented their numbers so far, the growth of profits is around 20% year-on-year compared with 30% in the last quarter.