Is Moody’s upgrade enough?

It was a week with two different halves on Dalal Street. While in the first half the market was on a correction and lost ground, in the second it was on a recovery mode and gained ground. It was aided by the upgrade from Moody’s which happened on Friday early morning. Net result was that markets ended virtually flat with the BSESENSEX gaining 28.24 points or 0.08% to end at 33,342.80 points. NIFTY lost 38.15 points or 0.37% to close at 10,283.60 points.

Coming to the two halves in more detail one can see that in three sessions the BSESENSEX lost 554 points and gained in the next two 582 points. NIFTY on the other hand lost 203 points and gained 165 points. What is even more interesting is the intraday movement on Friday when upgrade announcement happened. BSESENSEX at its high had gained 414 points, it could retain just 236 points or 57% of the gains. In the case of NIFTY, the intraday high was 129 points, while the gain retained was 69 points or 53.4%. This was on the back of a huge news like Moody’s which upgraded India’s sovereign rating by one notch from Baa3 to Baa2. The outlook has been changed from positive to stable. This upgrade has happened after 14 years and the last time it happened was in the fag end of Vajpayee’s government.

The above point is being highlighted is that markets recovered technically as there was a correction on for quite some days and had become oversold. A positive news item accentuated the rally and helped the sentiment but could not retain the gains. There is lack of conviction in the results and growth is lagging valuations. With liquidity too now no longer as freely available with the overkill of IPO’s and particularly from insurance companies, one needs to relook and take a dispassionate look at valuations.

There were two listings last week. The first was from Khadim India, the shoe maker from Kolkata which listed on Monday and had a poor showing. The shares at weekend were down 10.70% at Rs 669.75 against an issue price of Rs 750. The other listing from HDFC Standard Life saw the shares gain 18.71% at Rs 344.25 against an issue price of Rs 290. This performance when viewed against similar insurance IPO’s from PSU and private is in stark contrast. Very clearly the brand HDFC stood out and gave comfort to institutional investors who subscribed the issue in large numbers.

Primary markets have taken a breather and would in all likelihood resume in the second fortnight of January. There could however be an isolated issue or two which comes in this period as well.

The markets saw the beginning of the correction, a small pullback and in all probability the correction to continue this week. Trade cautiously and wait patiently for opportunities to arise.

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