The Week Ahead 14/05/2007 to 18/05/2007 – The Road Ahead
Posted by dipanksaha on May 13, 2007
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This Friday people skeptically remembered the day on which many investors lost their shirts – the 11th of May 2006. And from the morning only, market-players were suspecting another horrific Black Friday. Back stage was ready as international markets were quite down in the opening. But things turned opposite as day proceeded. And after quite a volatile movement market settled for a slightly positive closing.
For few day, I am voting for a range bound market. And the range, I wish, market would follow is pretty narrow, 4000 to 4200 for Nifty50 with some plus/minus error factor. You can argue that how long market will abide
by such a limited range. I do ask myself this question. And indirectly, the answer to this question will be ” as long as fresh follow through buying is not coming”. And follow through buying is possible only when new outlook opens up in valuation front. Till date Nifty50 is trading at around a PE of 19.35 times. If we consider that historically PE resistance for Nifty stands at around 22 then upside is limited to 4650 at fair value. So upside is of 400-450 points only or rather of 11% approximately.
Add to that the currency risk and risk regarding Monsoon. Last week Met Department forecasted an early arrival of Monsoon. But as fate of many sectors like, FMCG, Cement, Consumer durables, Auto depend directly and indirectly on the Monsoon, market might become volatile as response to Monsoon updates.
So, ultimately risk adjusted return is lower then our previously calculated possible upside of 11%. And this can be a spoil-sport.
Primarily, I feel market will try to breach 4200 and taste a new high very soon. But market time is not my forte. Only thing I wish to do is to wait and watch. I would prefer your company.
