Domestic stock indices are likely to consolidate next week as profit booking could kick in post the gains of more than 4% since last Friday. However, the underlying sentiment remains bullish due to hopes the government will roll out more reforms to support the country's growth. Next week will also witness the expiry of the September derivatives series.
This, along with overseas cues, will set the tone for the trend in local equities. Long-pending reforms by the government recently have brought much cheer to the market. Yesterday, the government notified investments in exchange-traded funds and mutual funds eligible under the proposed Rajiv Gandhi Equity Savings Scheme, and also a cut in withholding tax on interest payment on external commercial borrowings by Indian companies to 5% from 20%.
Market participants believe retail participation in the equity market will increase once the Rajiv Gandhi Equity Savings Scheme is implemented. In reaction to the announcements yesterday, the National Stock Exchange's 50-share Nifty and the BSE's 30-share Sensex hit their 52-week highs. The Nifty ended at 5691.15 points, up 136.90 points or 2.5% from Thursday, after touching an intraday high of 5720.00 and a low of 5575.40. The Sensex closed at 18752.83 points, up 403.58 points or 2.2%. Intraday, the index traded between 18411.20 and 18866.87.
We expect the Nifty to remain positive during the settlement week and the index may settle the September series near highs. However, 5800 levels may prove crucial for the Nifty and it may consolidate around these levels for some time. Traders expect profit booking on the Nifty above 5750 points. Support for the index is pegged at 5550 points.
stocks of power companies may extend gains next week amid hopes the government will announce reforms for the sector. Stocks of mid-cap companies may continue to rise. Reliance Capital shares may remain firm amid hopes the Cabinet, at its meeting Tuesday, may approve raising the limit for foreign direct investment in the insurance sector to 49% from 26%. yesterday, the company's shares surged more than 10% to 399.90 rupees. With the FDI limit opening, we believe along with existing partners, many foreign players will be interested to take minor stakes...insurance IPOs (initial public offers) may also be successful.
