No time for break, bulls head to 16k

Bulls kept up the momentum on Monday, raising key indices to new highs. Players are expecting wild swings in the next couple of trading sessions ahead of the expiry of the current month’s derivatives contracts on Thursday.

The heightened sense of caution did little to stop the 30-share Sensex from touching a new high of 15773.4. The index settled at its best-ever close of 15732.2, a gain of 166.7 points or 1.1% over its previous close.

The 50-share Nifty soared to a record of 4628.5 intra-day before closing at a high of 4619.4, up 1.2% over its previous close. Three stocks - L&T, Bhel and Bharti Airtel - accounted for nearly 50% of the rise in the Nifty.

Market breadth was not very convincing, with gainers sneaking past losers 1330:1306. According to dealers, investors booked profits in second-line shares, expecting a correction in the broader market. The constant movement across frontline shares by foreign funds is expected to keep benchmark indices in the upward trajectory.

Capital goods stocks, which have been enjoying earnings upgrades by leading brokerage houses, were the drivers of Monday’s upswing. Bhel, L&T and ABB were the Nifty topscorers, rising 7-8%. “We expect Bhel to win a series of orders from NTPC, DVC, Nuke Power & SEBs, which should result in an historic order intake of Rs 375 billion (+5% year-on-year) and backlog of Rs 714 billion (+30% y-o-y) in FY08,” said brokerage house Merrill Lynch, adding that these orders would offset concerns over increasing competition.

The brokerage house said, “For L&T, an earnings per share CAGR of 28% (FY07-10E) and creation of future-growth vehicles by entering into high-end power equipment, shipyard and expanding defence, nuke & aerospace domains are potential triggers ahead.” Merrill has raised its price target for Bhel from Rs 1,650 to Rs 2,000, and that for L&T from Rs 2,150 to Rs 2,830.

Investors shunned stocks from the banking, pharmaceutical and technology sectors. The market is not expecting interest rates to rise further in the short term, but banking shares were already factoring in near-term positives, following a good run-up in the past couple of months.

The BSE FMCG index rose over 2%, and figured among the best performers in sectoral indices. Gainers were led by Hindustan Unilver, which rose over 5% after the company on Friday said it would consider a share buyback at its board meeting on July 29. In the currency market, the rupee rose to a fresh nine-year high of 40.23 per dollar. However, the Reserve Bank of India stepped in through the state-run banks to buy dollars to prevent the rupee from rising too much in a single day.

Traders in the forex market said that the RBI intervened between 40.25 and 40.30 levels, after which the rupee slipped due to selling of dollars by multinational banks. The local currency finally closed the day at 40.26 level to the dollar.