Reversal anytime now

The market is getting long in the tooth and the chance of a sudden reversal is strong

Market indices touched a two-year high today. They opened high, sold off in late morning trade and rebounded to record new highs. Even after selling went up in late afternoon trades, the BSE Sensex ended the day with a gain of 67 points (up 0.38%) at 17,711 points and the Nifty ended at 5,302 points, 21 points higher (up 0.3%). 

European stocks traded higher on Monday. Asian stock markets were mostly higher on Monday as stronger earnings from Chinese companies and a deal to provide Greece a financial safety net helped buoy sentiment. The key benchmark indices in Hong Kong, Singapore, and Taiwan rose by 0.49% to 0.88%. However, the key benchmark indices in South Korea, Indonesia and Japan fell by 0.09% to 0.94%. Japan's retail sales gained at the fastest pace in more than a decade in February as economic recovery spread to households. Sales rose 4.2% from a year earlier, the Japanese trade ministry said in Tokyo. Sales posted the biggest monthly jump since 1997.

Russia's central bank cut key rates by 25 basis points on Friday, and analysts forecast more easing to come as the economy remains sluggish and the currency still strong. China's annual economic growth will reach 12% this quarter, a government researcher said. The Dow Jones Industrial Average rose 9.15 points and the S&P 500 Index inched up just 0.86 points on Friday. World trade in merchandise goods is expected to rebound strongly this year as economic recovery takes hold, expanding by 9.5%, said the World Trade Organization’s director-general. 

Closer home, the finance ministry said that gross domestic product grew at the rate of 5.6% in the 4th quarter against 5.9% estimated earlier. The RBI said that it will hold the liquidity adjustment auction on Tuesday and Wednesday. It usually conducts one such auction, except for reporting Fridays when there are two repo and reverse repo auctions.

The government will sell Rs2.87 trillion ($64 billion) of bonds in the first half of 2010-11—63% of its record full-year target, less than market expectations, sending yields down. On an average, Rs110 billion-Rs150 billion of issuance would come to the market every week.

FIIs were the strong net buyers on Friday (Rs591 crore). Domestic buyers also purchased stocks worth Rs49 crore. Among stocks, Punj Lloyd (down 3.8%) will sell its stake of just over 19% in Pipavav Shipyard to co-founder SKIL Infrastructure to raise cash by selling assets. The report said that the deal was likely to be struck at Rs700 crore, at a discount to the prevailing market price as Punj Lloyd is selling before the end of a three-year lock-in period. Pipavav Shipyard listed last year, with an initial public offer. Founder-shares are locked in for a period of three years from the completion of an IPO, under Indian regulations. SKIL, which holds about 20% in Pipavav, will have to make an open offer to minority shareholders for a further 20% stake. Axis Bank (up 0.68%) has issued 5.5-year bonds worth $350 million, priced at 275 basis points over comparable US treasuries. The transaction was upsized to $350 million from an original $300 million to accommodate additional investor demand. Nagarjuna Construction Company (up 3.5%) is about to reach financial closure for its thermal power project at Srikakulam district in Andhra Pradesh. We expect the market to trend higher over the medium term thanks to a strong rupee, low interest rates and expectations of continued economic growth.

However, the market is getting long in the tooth and a chance of a sudden reversal is strong.

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