Nifty likely to rally to 5800-5900 levels: Ashwani Gujral, Fund Manager, ashwanigujral.com

The Nifty continued its rally in the past week, gaining about 3.5%. The Bank Nifty gained over 10% in response to the measures announced by RBI’s new governor Raghuram Rajan. With this, the pullback rally has gained further traction and the Nifty is now likely to rally to 5800-5900. The shallowness of the market ensures that there are wild swings even when there is a trend in one direction.

Most economic news remains fairly poor and geopolitics is precariously poised. US Federal Reserve’s tapering of the monetary stimulus now looks almost a certainty and markets have more or less adjusted to it. It’s likely that both the rupee and stocks correct their trends, with the corrections being fairly large in magnitude. The rupee is correcting from the 69-a-dollar levels reached couple of weeks back. It’s possible, given the measure being taken by the RBI, that the rupee may come back to the 62-64 levels.

Although RBI’s measures cannot solve structural economic issues, they can still influence the rupee and stock markets. We are dependent on dollar inflows to finance our CAD, and those dollars will come if the investment outlook improves and the bottlenecks in the economy are removed. Emerging markets in general and India in particular are not a destination of choice for FDI or FII investment anymore. There appears to be a huge short-covering rally in banking and rate sensitive stocks, so traders can ride that momentum on the upside.

I expect this rally to be temporary -- downtrends and new lows are possible in many cases. Stocks on the uptick, like technology, pharmaceuticals, metals, etc, are in correction mode and could be bought at lower levels. Key weekly levels for the Nifty, Bank Nifty and CNXIT are 5562, 9518 and 8295.



Stock calls:

Buy HDFC with a traget price of Rs 800

Last Close: Rs 762 Stop Loss: Rs 735



Buy Yes Bank with a target price of Rs 325

Last Close: Rs 293 Stop Loss: Rs 200

Buy Larsen & Toubro with a target price of Rs 790

Last Close: Rs 754 Stop Loss: Rs 735