Markets have been weak on Friday and it is on the back of global markets. The Dow in the last two days has lost about 500 points and 3.59% in the week. This is the worst week since November 2011. The SENSEX has made a new closing high on Thursday when it closed at 21,373.66 points against the closing of 21,326.42 points made on 9th December 2013 when the SENSEX made an all-time high. There is interest in the market but scepticism currently is fairly high. Results so far have been good but these are from the larger companies and predominantly from the IT and pharma space. Here also treasury income has helped in the overall picture while there is pressure on margins.

The week ahead would see RBI governor RR declaring his policy review on Tuesday followed by a two day US FED meeting on Tuesday and Wednesday. Thursday would see the January series futures expire. These three events would keep the markets active and give plenty of opportunity to move. It is important to note that markets are still range bound and are trading in a roughly 700-800 points range on the SENSEX and 200-220 points on the NIFTY. For there to be a meaningful move we need to get out of this range and it does not look like this would happen any time soon.

The Delhi experiment seems to be turning out into a bigger mess with every passing day and it appears that the time when voters of this experiment will revert to the normal political party are not too far away. When this clarity will hit Dalal Street we are likely to see new highs surpassing the 21,500 mark and crossing 22K as well.

Inflation at the CPI and WPI were lower on expected lines and gave the markets a fresh breath of air. The markets gained a whopping 376 points on the SENSEX and 101 on the NIFTY on Monday and then played with these points for the remaining four days. The result season is on and some of the biggies like TCS, ITC, Reliance and Wipro declared results during the week. The key observations from them is that there are cost pressures and while the better companies have managed their treasuries more on the absolute level, margins are under pressure. This is the state of India’s top companies and one would wonder how the middle rung and lower quadrant of companies would fare in these challenging times. Elections are about four months away and there is uncertainty which would remain for some time.

The midcap and smallcap shares have received a boost with the PCA or periodic call auction being modified significantly. Volumes in the previous week were better and one could see a sigh of relief on the faces of investors and brokers as like became easier. There is however danger lurking in the corner. The buzzword is midcap and smallcap and everyone wants to invest in these shares. There is value in the sector but it is in particular shares and not the whole pack. One hopes and prays that investors who want to enter this space do proper stock selection and then decide what and where they want to invest. It does not make sense to invest in just anything from this space.

Stock markets discount the future and this is an old adage. Markets discount the future. Politics seems to be making new lows in our country and things are going from bad to worse. We have the latest Chief Minister who has not yet got over the days when he used to sit in protests that he is not on “DHARNA” but is the CM. He needs to take decisions and act on them Manifesto time and promises time are over. It is time to deliver. On the other side we find that members of the government are at pains to refrain from making unparliamentarily remarks about their adversary. It is most unfortunate that the humble background or beginnings of a person should be ridiculed. One just hopes that wisdom prevails and this is stopped.

Inflation for the time being is out of the way for January and there are is no economic data due in the week ahead. The big action would be in the following week where you have RBI and FED having their monetary policy review meets. In India with inflation showing some signs of moderation in all probability interest rates would remain unchanged while the FED would decide on further tapering. Besides these events and the results we have expiry of January series as well.

It’s now almost six weeks since the markets made new lifetime highs post-election results to five states. Since then the market has made multiple attempts to break upwards but failed. The net result is that we have been trading in a band and it’s time for the markets to take a call and move out of this band. The markets are likely to give an indication of which way they want to move during this week. Key levels for the SENSEX would be 20,835 and 21,325 on the SENSEX and 6,100 and 6,335 on the NIFTY. Trade cautiously and not to get carried away either by the midcap/smallcap momentum or the political drama unfolding in Delhi.

Trade cautiously.