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Blockbuster start to 2012

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Blockbuster Start to 2012

The start of 2012 has been a thrilling experience for anyone who is into stock markets. It’s been a stupendous rise for some of the major stocks and indices are clocking gains as I write this piece of article.

What needs to be seen now is whether the rally has gathered enough momentum to sustain the same, in short whether it is a steroid providing a short term boost or a proper medication. It’s not how effective a medicine works at the first instance, it is how far can the medicine last and what would be the repercussions of the same is something which needs to be watched with bated breath.

FII’s have made a strong comeback into our markets. Till date since the onset of 2012, they have pumped in 25000 cr(approx), and let alone in the month of Feb they have pumped in 14000 cr (according the the actual numbers from SEBI). We have already seen, some of the stocks making a brilliant comeback and rallying more than 50% of their price since the last 5-7 weeks. The European problems and its issues are being sidelined by the markets, and we can now say that they are forward looking, especially with the painful Q3FY12 period for most of the local companies getting a relief.

I believe that the undertone of this strong rally has purely been the turnaround of the interest rate cycle. RBI cutting the key interest rates and signalling that inflation cooling further will give them a leeway to relax the steep rise in interest rates and Infact go for a cut in the same. The banking sector which comprises a major proportion of our stock market capitalisation will heave a sigh of relief with this reversal of interest rate cycle. This will in turn have a trickling down effect to rate sensitive sectors such as Real Estate, Auto stocks, Capital Goods etc.

Technically one of the best part of this “relief rally” has been that we have comfortably crossed the 200 DMA, and have managed to sustain that since the start of Feb 2012. This is an extremely positive sign for the outlook going forward. Some stocks have touched their 52 weeks high and some of them have rallied to lifetime highs in this rally. It is a good sign, but what is now important is when the markets would go into the consolidation phase the kind of correction in the stocks which we will witness then, would determine the sustenance of this rally going forward.

It is true that stocks would always provide a higher percentage returns vis a vis the index, but it is the index which will show the actual “direction of the trend”.

Markets have proved it yet again that “ To break extreme pessimism, you need extreme optimism.”

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