Investors may use revival to book profits

MUMBAI: The possibility of stocks retreating this week looks more likely than a sustained rebound, as investors are wary that the recent bounce has been driven by short-covering rather than renewed purchases. Analysts don���t rule out stocks adding a bit more gains early this week. But they feel investors may book profits, while traders are likely to create short positions on further upsides.

���The Nifty is likely to face resistance at 4850-4900 levels, and once again, test the 4300 level, which coincides with the 200-DMA,��� said Antique Stockbroking manager-technicals Shruti Meghani Vora, who attributes last week���s rebound to ���technically oversold conditions���.

On Friday, the Nifty ended at 4796.15. The index had touched 4538.50 earlier this week, sliding almost 12% from
mid-October. The market bounce, in the previous week, was mainly led by short-covering after the Fed in the US indicated its preference for holding rates near 0% for a longer period.

But, market participants said these comments from the US central bank have just temporarily relieved the markets, but concerns over American government withdrawing the stimulus package earlier-than-desired remains. Investors fear that an early revoking of the stimulus, which is credited to have boosted the US economy growth to 3.8% last quarter, would scuttle early signs of recovery in the world���s largest economy and importer.

���An early withdrawal of the stimulus package is certainly a big risk for the stock market, but we do not expect authorities to take any step that cuts off a recovery,��� said Bharti AXA investment managers��� head-equity Prateek Agrawal.

He remains optimistic about equities, contrary to many in the street, who are cautious about the market���s near-term outlook. ���The way to look at it is the risk to upside is higher than the risk to downside,��� added Mr Agrawal.
Market participants said the direction of the US dollar will play a key role in determining the market direction. Any rebound in the dollar against the rupee could result in foreign institutions booking profits in Indian stocks, as a weaker rupee reduces the value of their local stock exposure.

Amid a cautious outlook, analysts expect investors to shuffle their porfolios in favour of the so-called defensive
sectors such as consumer goods and healthcare. Antique���s Ms Vora is bearish on automobile, metals and bank shares, while expects consumer foods and healthcare shares to outperform in a weak market.