Midcap and Small caps to lead upsurge

Markets began the last week with big gains on Monday and then traded in a narrow range, gaining on four of the five trading sessions.

The BSESENSEX gained 345.65 points or 0.83 per cent to close at 41,945.37 points while NIFTY gained 95.55 points or 0.78 per cent to close at 12,352.35 points. The broader market saw BSE100, BSE200 and BSE500 gain 0.98 per cent, 1.22 per cent and 1.44 per cent respectively. The breadth of the market rose very sharply with BSEMIDCAP gaining 3.63 per cent and BSESMALLCAP gaining 3.97 per cent. This kind of gain in Midcap and Smallcap indices has happened after a very long time.

The Indian Rupee was volatile and lost 14 paisa or 0.20 per cent to close at Rs 71.08 to the dollar. Dow Jones hit yet another lifetime high and gained 524.33 points or 1.82 per cent to close at 29,348.10 points.

Result season is off to a good start with first Infosys declaring a decent set of numbers and now Reliance Industries and HDFC Bank. While the bank has reported a growth of 12.7 per cent in net interest income, it reported a jump of 15.6 per cent in profit before tax and 32.8 per cent in net profit at Rs 7,416 crore. The only point of concern was Gross NPA's which rose by 4 basis points to 1.42 per cent and 23.2 per cent to Rs 13,427 crore as an absolute number.

Market is expecting changes in DDT or Dividend Distribution Tax with the same likely to be shifted to the recipient instead of the giver. Further there are expectations that there would be changes in individual taxes with the rates and slabs changing. Also, some of the deductions available to individuals may be removed or substantially altered.

The gold monetisation scheme has somehow not taken of with the vast majority of individuals worried that their conversion under the scheme would attract the attention of the tax authorities and lead to complications. Considering the high stakes involved where India's holding of gold is estimated at between 25,000-30,000 tons, the government needs to be innovative and bold in tweaking the scheme. They need to allow a housewife or lady to convert 500 grams of gold without asking for details. This would free up a large amount of gold and ensure that India does not need to import the annual approximately 600 tonnes of gold which is our domestic demand for many years to come. This would be a big relief to our trade deficit and would indirectly help in also strengthening the Indian currency.

The open interest in the market continues to be healthy and even though we have been on a buoyant note, the positions have not risen or changed dramatically. We are in no imminent danger of being either overbought or oversold. This is a very healthy indication that nothing dramatic in the market is to happen in the immediate short term

The week ahead would see the benchmark indices scale new peaks. These however would not be big jumps but of a more measured and laboured move. The action would continue like the previous week in the Midcap and Smallcap space where there would be a larger number of stocks performing. This would keep marketmen and investors happy.

The strategy would be to ride the wave and pick stocks from the Midcap and Smallcap space where all the action is currently focused. While the large cap stocks had seen lot of traction in the BFSI space, this sector took a breather last week and would be ready for another round of up move before the week is over.

Trade cautiously.