Wednesday, January 09, 2008

A vertical fall is unlikely till the Reliance Power's IPO

Indian markets ended on a weak note yesterday. The weakness was, however, not to be seen if one were to look at the BSE Sensex and the NSE Nifty. Both ended in the green.

It was the midcaps and the smallcaps that bore the brunt of selling pressure. The BSE Midcap and the BSE Smallcap indices have lost close to 5% over the past few days. Is it a good time to book profits? Probably Not. Till such time as the high profile IPOs such as Reliance Power are out of the way, market sentiment is unlikely to get disturbed. In fact, Market Sentiment will be 'maintained'.

Another important indicator to look at is the options market. If there are more PUT options outstanding, then there is a good likelihood of the markets ending in positive territory or around current levels and vice versa. Reason.

Currently, the number of PUTS outstanding exceeds the CALLS outstanding by over 40%, thereby implying that the markets are on a reasonable wicket and are unlikely to witness a steep level from the current levels.

However, it might not be a bad idea to start booking out of 'over-valued' stocks (e.g. the entire power generation & equipments pack) starting next week (i.e. as we move towards the Reliance Power IPO, which will end on the 19th).

Markets are looking frothy at this point of time...and it is about time one did a fundamental check (Valuations v/s Potential) of his/her holdings.

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