Market Resilience signals continuation of rebound atleast till 10th Jan .....

On 28th November we had mentioned that the market valuations are attractive and the indices could rebound by 15-20% led by the commodity stocks. That has played out so far with stocks like Sterlite (+26%), SAIL (+17%), Tata Steel (+40%), Reliance(+15%) and Reliance Petroleum (+7%) have moved up significantly. Obviously it han't been a one way upward journey, but still the gains were pretty swift and substantial. The only ones that didn't gain from our list were the aluminium stocks and the reason is that they had already recovered 30% from their October lows. There is quite a bit of steam left and we think these stocks have some more distance to go.

The sensex is now at 9690.07, having risen about 7% since 27th November. Given the market resilience last week and particularly on Friday, we think the market will continue its upward journey atleast for another three weeks. Again it will not be a smooth journey, but in the short term the trend is positive.

There are several positive triggers that can help this upward journey continue:

• Bailout of the US auto majors - Ford, Chrysler and GM.
• Cut in US interest rates by another 0.5% on Tuesday.
• Second stimulus package by the Indian Government.
• Interest rate cuts in India.
• NAV propping by funds at the quarter / year end.
• Chinese government's decision to increase money supply to fight recession, which will give a further boost to commodity prices.
• Appreciation of the rupee to 45 levels as dollar loses value.
• OPEC plan to cut crude production in a bid to push up oil prices (meeting planned on 17th Dec).

There WILL be a lot of action in several midcap stocks, especially those in the F&O space. These stocks can give as much as 30-40 percent returns in the next four weeks.

Every bull market has its share of fraud companies. They somehow declare fantastic results and manage to give the most spectacular returns on the way up. Investors typically chase them on the downturn because they appear to be cheap. These are the ones that do most damage to our portfolios. Fortunately, the bear market filters them out and you have a clean lot at the end of the bear market. Give another four quarters and you will know the difference between the good and bad. Till then stick to companies that are old with proven track record and have size and liquidity.

Good luck!

Vivek Bhargava

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