Reference Auto

Buoyancy is back in the stock markets on the back of strong buying by domestic investors as well as foreign institutional investors or FIIs and this has propelled the benchmark Sensex of the Bombay Stock Exchange or the BSE as the crisis in Greece wanes.

But it seems the robustness will be for the short term as the economic indicators are a worrying factor.

With inflation inching towards the double-digit mark, the Reserve Bank raising key rates and demand for goods as well as loans dwindling, the prospects for the medium term don’t look good.

The burgeoning inflation will make goods costlier, higher rates of interest will prompt people to shy away from loans such as housing loan and car loan and this will result in a slide in the demand for homes as well as cars.

For instance, a slowdown in car sales is likely to force the Society of Indian Automobile Manufacturers or the Siam to scale down growth target for the auto sector. A ripple effect will hit demand for most goods in general.

Even the manufacturing sector has seen a hit.

So, even as the Sensex surged 522 points (the second consecutive rise in two weeks) last week to touch an eight-week peak of 18,762.80 points on Friday (close), the key indicators don’t look robust. The NSE 50-share Nifty also went up by 155.95 points.

FIIs, who are the main drivers in a stock market movement, purchased shares worth almost Rs 5,800 crore during the previous week.

Sustained short-covering by operators owing to expiry of derivatives contracts also helped the rally.

So, if investors put in money in the hope of making a quick buck within a year, they would probably stand to lose out as returns could be just minuscule or almost nil.

Therefore, how does one utilise such an opportunity? The Sensex has peaked to an eight-week high and speculators, who have picked up stocks about two months ago, could stand to gain, especially if the shares they picked are from the 30 stocks that make up the Sensex.

For other stocks, the investor or speculator needs to compare the closing prices (of around two months back and what the value is now).

Fast moving consumer goods, realty, metal, capital goods and banking stocks were the gainers during the previous week with most indices witnessing over 2-4 per cent gain.

Whenever markets are on a rise, experts seem to set a target for the benchmark indices, as the market buoyancy tends to make them buoyant.

As stated earlier, the economic indicators are rather gloomy and there doesn’t seem to be any driver to sustain the rally.

Moreover, with corporates unlikely to post good numbers in the forthcoming results season, the Sensex could be heading south, may be in the next two to three months, and probably would remain robust only in the near term.