Close: New high yet again.. in the momentum of the budget

Great rally by the Sensex! The market managed to gain sharply in late trading session largely led by the Telecom sector. The major drivers were Reliance and HDFC while metals were the disappointment. The start was bit lacklustre as there was no significant trigger for the market. Result season is almost over and digested. Budget is the next event to be tracked. Lot of expectation and speculation is driving the markets. Excise cuts on cars, VAT on cigarette etc etc etc. .Whether they materialise is the big question. Best to avoid any action on back of speculations. Mid caps were in focus and we believe that they are set to deliver.

Sensex closed up 112 points at 14515.9 helped by gains in RCVL (515.1,+5 percent), HDFC (1817.25,+4 percent), Rel Energy (548.5,+3 percent), Maruti (963.35,+2 percent) and Hero Honda (730.1,+2 percent). Restricting the gains were Hindalco (178,-3 percent), Wipro (634.75,-1 percent), Cipla (247.35,-1 percent), Grasim (2789.45,-1 percent) and NTPC (141.25,-1 percent).

Inflation is a worry for now. 6% plus inflation growth have put in force the Govt. to takes immediate steps. The custom duty on cement, palm oil and various other imported items had been reduced. But we believe that this won?t have any significant impact as the crisis remains on supply side. The industrial and manufacturing sector continues to grow in double digit whereas agriculture is growing only by 2-3%. This really puts a big question mark on the self sufficiency of a country like India with GDP growth of 8.5-9%. This will be the main issue to be discussed in Union Budget 2007-08. Agriculture will be in focus. Jain irrigation and Kirloskar pumps are the companies related to agriculture. Jain Irrigation rallied.

SBI continued with its gains. An official indicated that they may dilute govt equity by share sale via rights issue. RBI will transfer its 59.7% stake to the government of India @ Rs 1300/share or market based on the Sebi formula of 6 months average price. This will happen by June 2007 and would be cashless. Thus the Government will be able to lower its holding to 51% from the 55% that mandatory under the SBI act. This should enable SBI to raise fresh equity by diluting about 8% holding to help fund growth and also meet Basle II requirements. However, the big trigger for SBI is the merger with its subsidiary banks and there is no word on that. Investors had been hoping for a change to the FII/FDI ownership a limit which is pegged at 20% for government banks.

The Index has touched all time high- but Textiles have remained an underperformer. As per market sources, denim prices have moved up and that is some positive for the Denim Manufacturers. The demand scenario continues to be sluggish. Cotton prices have moved up by 5% pushing up yarn and Denim prices. The companies which would benefit from the same are spinners who would have contracted cotton already. Some trading upsides possible.. but tough call to say whether they will enjoy sustained higher margins and this also depends on how much cotton has been contracted.

Technically Speaking: Sensex has given a break out and its two days a close above 14320 which was a big resistance. Sensex next resistance is now at 14640 levels and in a new range.. The caution is that MACD is showing divergence.. Sensex has supports at 14210 and then at 14020. One could use the above levels as stoploss for long positions and trade up with the flow of the Index