Reference Auto

The BSE Sensex’s rise to a two-month high on Friday could have been artificial after the Reserve Bank of India said it may give a break to its slew of rate hikes in its next review meeting.

The central bank had raised the repo and reverse repo rates (the rates at which the RBI lends to banks and vice-versa) and hammered down GDP growth prediction to 7.6 per cent at its recent policy review a couple of days ago.

But the RBI assurance prompted the BSE benchmark index to jump by 516 points on Friday itself, which is its highest close in eight weeks. The Sensex ended the week at 17,804.80 points.

This has brought some buoyancy back and has made investors richer by a whopping Rs 2.66 crore.

Also, the NSE Nifty moved between 5,000 points and 5,400 points before closing the week at a three-month high of 5,360.70 points.

The benchmark index’s Friday close was also its highest weekly gain in two months.

Moreover, Euro Zone’s desperate efforts in trying to contain its debt crisis gave a positive signal to global bourses, whose ripples were felt in India.

The Sensex, which slid 13 per cent this year, spurted 6 per cent during this festive week. This is its best weekly percentage gain since the first week of September.

Buying was witnessed in 12 out of the 13 sectoral stocks, which ended with sharp gains from 2.5 per cent to almost 10 per cent. Metal, realty, refinery, IT and power scrips led the surge. Only the BSE consumer durables index was gloomy and fell a tad 1.08 per cent.

In the Sensex pack, 28 out of 30 scrips ended with healthy gains but two banks – HDFC Bank and State Bank of India – ended in negative territory.

Whenever a bull run occurs, we notice that investors tend to go overboard with their optimism and, if a bear run takes place subsequently, they take time to come to terms with the gloom, resulting in them losing crores.

Now, for the past three-four years, the Sensex has been hovering around the 16,000 points-20,000 points mark and this is definitely not a good signal for long-term investors of stocks as well as mutual funds and ELSS investors.

What the Sensex now needs is a new medium to long term trigger, so that it remains above the 20,000 points mark and hovers around a higher range. But that really doesn’t seem to be happening in the near term.

Inflation for the week surged to a six-month high of 11.4 per cent, owing to a rise in vegetable prices. This could prove to be a worry for the stock markets and drag down the bourses if it persists.

So, will it be easy for the Sensex to break the 17,000 points-20,000 points barrier under the current circumstances, with the Europe crisis as well monster inflation still there and are we seeing a new bubble prompting the Sensex to rise artificially in the short term?