Markets look overheated, take money off the table

The week began on a quiet note and markets lost ground on the first two trading days. They then rose quite sharply and gained on the remaining three. BSESENSEX gained 1,498.62 points or 2.67 per cent to close at 57,570.25 points. NIFTY gained 438.80 points or 2.62 per cent to close at 17,158.25 points. The broader indices saw BSE100, BSE200 and BSE500 gain 2.58 per cent, 2.45 per cent and 2.33 per cent, respectively. BSEMIDCAP was up 1.65 per cent, while BSESMALLCAP was up 1.06 per cent.

The Indian Rupee gained 61 paisa or 0.76 per cent to close at Rs 79.25 to the US dollar. Dow Jones had a strong week and gained 945.84 points or 2.97 per cent to close at 32,845.13 points. Dow gained on four of the five trading sessions, losing on just one.

July futures expired on a very strong note and closed at 16,929.60 points. It gained 1,149.35 points or 7.28 per cent for the month.

In economic news, the US Federal Reserve raised interest rates by the expected 75 basis points and the rate band is now 2.25-2.50 per cent. From the minutes of the FED meeting, what transpired is that the balance sheet reduction would accelerate from September 22. Inflation remains high and they hope to bring it down.

Yes Bank has raised 1.1 billion US dollars through a preferential share issue and warrants to be exercised into equity at a later date. The bank allotted shares at Rs 13.78 and warrants at Rs 14.82 to Carlyle and Advent International.

Zee Entertainment and the proposed merger with Sony Pictures has received in-principle approval from the stock exchanges. They would now file the matter with NCLT.

FPIs after being sellers for the last eight months turned buyers in July 2022 with net purchases of Rs 6,300 crore. This has helped in the markets being more buoyant as the continuous supply of paper has now abated.

The bidding for spectrum is almost over except East Uttar Pradesh which still continues. The government has received so far bids worth Rs 1,49,623 crore, far higher than the anticipated collection. East Uttar Pradesh is a dominant territory in terms of traffic and revenues for all the three players, and therefore the bidding has got accentuated and extended.

In the week ahead, RBI meets between August 3-5 for its monetary policy meeting, where interest rates are expected to be raised. While one would have considered the raise to be lower than the last time round, the situation has been changed as this meeting has been preponed. It would be interesting to see how markets react to the change in interest rates and also the commentary from the press conference of the RBI Governor.

The markets have made strong gains and are quite close to the intermediate tops made on April 21 and 29 at 57,991 and 57,925 points. The values on NIFTY correspond to 17,414 and 17,377 points. These become substantially important levels for the coming week. If the rally has to sustain and continue, we need to not only cross these levels but also sustain the momentum after crossing them. The last two weeks have seen markets gaining 3,800 points or 7 per cent on BSESENSEX and 1,100 points or 6.8 per cent on NIFTY. This is a steep rise without doubt and markets need to consolidate at these elevated levels before the rise from hereon. Key supports exist at the top of the June 13 gap and then at the bottom of the gap.

The rally over the last fortnight has been swift and ruthless on the bears. One needs to be sure that when the correction does happen, the fall would be equally swift and ruthless as well. The fact that Dow rose even though interest rates were hiked by 75 basis points for a second time in a row, has ensured the bears whether in India or the US have been forced to square up their positions and exit. The trading strategy would be to sell on any rallies and wait for re-entering the market at current levels.

It would be of paramount importance to resist the temptation of adding to fresh positions in an overheated market, even though there could be some steam left. Only those who are bold and able to resist will survive. Trade cautiously.