Sensex hits 16,000: The India Street Special Report

By Sundaramurthy Vadivelu

Bombay Stock Exchange In mid August, the emerging markets were reeling under selling pressure and the reason attributed to it was US Sub-prime mortgage crisis. Today, the BSE Sensex opened at 15940.79 and within seconds it began to trade above 16,000. The anchors of premier business television channels were full of smile and the Indian and foreign fund managers were of the hope that Sensex and India stock market are poised towards higher growth. The reason for today’s grand opening was reported to be Federal Reserve cut its benchmark lending rate by half a percentage point to bolster growth in the world's largest economy. After recording a high of 16335.30, the Sensex finally closed at 16322.75, gaining a whopping 653.63 points or about 4.17% Among the Sensex stocks HDFC, HDFC Bank, Bharti Airtel, ONGC, Maruti Udyog and Reliance gained more than 5% while not a single stock was among the losers. In June, I was interviewed by The India Street about Sensex reaching 16000 before the end of this year. TheIndiaStreet: Would you be surprised if the India Stock Market Index went on to break 16,000 this year? Sundaramurthy: No, certainly not. why not another 2000? When 4000 can become 14000,

Indeed, I was NOT at all surprised today about Sensex reaching 16000. In fact, in my very first weekly review of Indian stock market I wrote:

“However, the weekly chart shows that there is an ascending triangle breakout with a triangle height of about 690 points. This when added to 4245 gives a target of 4935”. Road to 16000: For those who are interested in statistics about how Sensex has managed to reach 16000 from about 3000 in April 2003, the following chart shows the milestones and number of trading sessions utilized for each milestone.
Sensex 16000 break up
14028.47 18000 16000 14000 9005.63 12000 Sensex 7001.55 10000 5068.66 8000 4026.27 6000 4000 2000 0 0 04/ 03 08/ 03 11/ 03 01/ 04 06/ 05 09/ 05 11/ 05 02/ 06 03/ 06 04/ 06 10/ 06 12/ 06 07/ 07 09/ 07 Date Sensex Trading Sessions 6034.38 8060.26 11017.25 15007.22 16335.3 367 13039.3 12053.74 400 350 300 250 200 132 144 150 100 53 41 55 53 48 29 19 26 52 50 0

3089.6

96

http://groups.google.com/group/theindiastreet/web/SENSEX_BREAKUP_19090 7.jpg

The Sensex took 367 sessions to reach 7000 from 6000. This is the longest duration it has taken to gain 1000 points. This is followed by 144 (14000 – 15000) and 132 (12000 – 13000). The least number of sessions of course was 19 (11000 – 12000). One important point to note here is that as the Sensex reaches the milestone faster, the next milestone is slowed up. Compare the 96, 53, 41 sessions; next milestone took 367 sessions. 48, 29 and 19; next milestone took 132 sessions. 26; next milestone took 144 sessions. The current 52 sessions look probably reasonable, so we may think of 17000 in near future.

10002.83

Most of today’s top gainers were sugar stocks – many of which have fallen badly in the last 18 months. The media reported that the sugar stocks witnessed heavy buying as the Government announced that sugar mills might be allowed to produce ethanol directly and will be able to sell it at Rs. 21.50 per litre. We shall now analyze the Sensex stocks and how they performed compared to Sensex between 15000 and 16000. Scrip REL RELIANCE BHEL HDFC NTPC ITC GRASIM TISCO BAJAJAUTO MARUTI HDFCBANK SBIN RANBAXY LT GUJAMBCEM ACC Close Close % 06-Jul 19-Sep Change 597.95 946.10 1,711.4 2,172.9 5 0 1,555.8 1,927.9 5 0 1,916.0 2,354.1 5 5 155.40 189.50 155.50 186.85 2,773.1 3,327.9 5 5 623.15 744.70 2,108.5 2,512.4 0 0 795.85 925.85 1,153.3 1,326.3 5 0 1,550.1 1,770.0 5 0 361.95 412.90 2,364.5 2,669.7 5 5 131.25 147.60 1,040.7 1,153.0 0 0 58.22 26.96 23.91 22.86 21.94 20.16 20.01 19.51 19.16 16.33 15.00 14.18 14.08 12.91 12.46 10.79

Scrip HINDLEVER HINDALCO ONGC RCOM BHARTIARTL TATAMOTORS ICICIBANK DRREDDY M&M INFOSYSTCH TCS SATYAMCOMP WIPRO CIPLA

Close Close % 06-Jul 19-Sep Change 199.95 217.00 154.25 159.45 879.35 901.50 550.50 563.95 866.40 886.30 710.60 722.20 981.55 970.40 672.50 645.05 787.35 740.95 1,971.2 1,853.3 5 0 1,159.0 1,022.4 5 5 489.20 429.50 519.45 448.15 212.10 169.50 8.53 3.37 2.52 2.44 2.30 1.63 (1.14) (4.08) (5.89) (5.98) (11.79) (12.20) (13.73) (20.08)

Reliance Energy Limited was the top gainer during this period with 58.22% increase while Cipla was the worst loser, having gone down by 20.08% While the Sensex gained 8.85% (high basis) between July 6 and September 19, 14 constituent stocks gained below that value.

http://groups.google.com/group/theindiastreet/web/SENSEX_INTRA_190 907.jpg The intraday chart of Sensex shown above illustrates how bulls were in total control of the index right through the day. Let us now discuss the medium term trend for the Sensex. Like the Nifty, Sensex also encountered an “ascending triangle” breakout in the weekly chart as shown below.

http://groups.google.com/group/theindiastreet/web/SENSEX_W_190907 .jpg We have seen earlier that it is a bullish continuation pattern and the triangle height is 2408. This when added to previous high of 14724 gives a target of 17132 (we discussed a target of 4935 for the Nifty earlier). Conclusion: Technical analysis is all about probabilities; there are no certainities. In my last weekly review I had mentioned that a corrective decline was likely as profit booking was seen at higher levels. The week started with a correction and the Sensex lost 99.37 points on Monday. But, the bulls however, have managed to break all resistances and take the Sensex past beyond its previous high as well as 16000. It is yet another good sign for the Indian stock market. Now the folks may believe that the US Sub-prime mortgage crisis, or for that matter any other crisis, is just media’s attempt to find causes for corrections/declines.

Sundaramurthy Vadivelu

LABELS: BSE, SENSEX, INDIA STOCK MARKET Suggested Reading • • • • • • • • • • Weekly review of Indian stock market Weekly Review of India Stock Market How will the US sub-prime mortgage crisis effect the Indian stock markets? An Interview with Sundaramurthy Vadivelu, Analyst for The India Street Stock of the week: Hindustan Unilever Limited Stock of the week: Videsh Sanchar Nigam Limited VSNL Stock of the week: Dr.Reddy’s Laboratories Limited Stock of the week: Bharat Heavy Electricals Limited Stock of the week: Infosys Technologies Limited Stock of the week: Reliance Energy Limited