Market Outlook -- Short Term

The market outlook, in the short term, has turned positive with the Nifty gaining support above 7400. 

The short-term momentum indicators have started trending up and the index now looks poised to move upwards to 7750. The next major resistance for the Nifty is placed at 8,000. The domestic and

global cues are very supportive of the current news-based rally and a rate cut in the next policy meet looks certain with the govt. cutting rates on Post Office savings schemes. This move of the govt. preempts banks from not passing on the rate cut when it happens. 

While the FPI's have been continuously buying, the domestic institutions have been selling due to slowing down of investments, redemption pressures and dividend payments.

With the interest rates on time and demand deposits coming down and becoming unattractive for savers, a likely shift to equity and equity-related instruments augers well for the equity markets. 

While it is not a good idea to chase the market/stocks in a rally, it is advisable to hold back your horses and wait for a dip or correction to 7500 or below in the Nifty. So far, this rally is not broad-based and has been restricted to beaten down front line stocks/select sectors (where the FPI's normally invest) and the mid-cap & small-cap rally will come when the domestic institutions & HNI's enter the market in a big way. In that sense, the present rally, which is now three weeks old, is a freak rally and has still to gain legs.

 I am closing this bulletin with a note of caution -- the market has entered an overbought area and I will not be surprised to see a selling or correction on good news. Therefore, trade with caution but invest with conviction when the market gives a viable correction. 

At the moment, 7500 in the Nifty is a good support area, where buying can be initiated, but one cannot rule out a deeper correction to 7250 if the the support base at 7500 fails to hold on to on a closing basis. 

*Think It Over*

"We don't have to be smarter than the rest. We have to be more disciplined

than the rest." Warren Buffet

*G R CHARI*