The domestic bourses continued their buoyancy from the previous owing to market sentiments turning positive. This was on account of CRR cut by RBI to the tune of 50 bps to 5.50%, thus boosting the banks with Rs. 30,000 crore liquidity. In addition to this, factors like the following:

a) Strong inflows from the Foreign Institutional Investors (FIIs) to the tune of Rs. 3,600 crores in the last five days supported the bullish trend.
b) Rupee continued to rally this week ending at 49.30, 2.1% higher for the week and retracing 8.5% from the lows of 53/dollar.
c) The markets closed with significant gains in the week with Nifty closing above its psychologically important level of 5200. The market has witnessed a stunning performance for the fourth consecutive week. The Nifty has surged 12.5% in the last four weeks.

During the week, Sensex was up by 3% and Nifty was up by 3.1% touching levels of 17,233 and 5,205 respectively. The CNX Midcap index was up 4%, the BSE Smallcap index gained 3.5% and the Bank Nifty was up 3%. The BSE Capital Goods gained 5.5%, BSE Auto was up 4.3% while BSE Oil &Gas closed with 3% gain over the week. The BSE Metal gained 3.7% and BSE IT was up 4%. The top Nifty gainers during the week were SAIL, Sesa Goa, Reliance Infrastructure and Larsen & Toubro (L&T).

Globally, US Fed extended an accommodative monetary policy wherein interest rates would be kept low till late 2014 versus market expectation of an exit on this in mid 2013. Fed Chairman Ben Bernanke suggested the US central bank is open to buying more bonds in a bid to stimulate borrowing and investments.

For the week S&P 500 and Nasdaq were up 0.07% & 1.07% respectively. However, Dow Jones was down by 0.47%. Asian markets remained positive during the week. Hang Seng, and Nikkei 225 were up 1.9% and 0.9% respectively. Sanghai remained flattish.

Precious metal “Gold” which was in limelight in CY2011 due to its bullish trend came back in picture. Gold prices rose for a third straight session in the aftermath of the Fed's commitment to rock-bottom interest rates, which kept pressure on the US dollar. It closed at US$1,739.19 an ounce, up 4.9% on the week, its strongest weekly rise since October, 2011.

We believe after the recent rally in domestic markets, downtrend in the domestic bourses is on the cards. At the current level of 17,233, the Sensex trades at a PE of 16x FY12E earnings estimate and 14x FY13E earnings estimate. At 14x, we trade below average valuations of 15x - one year forward earnings. We believe RBI may consider cutting rates by March-April 2012 which would provide the much needed support to the wounded domestic bourses.

In our view for CY2012, investors with a long term horizon of 1-2 years can consider accumulating stocks like BHEL, HPCL, Siemens, Mahindra Satyam, Jammu and Kashmir Bank, Pratibha Industries, IFCI, Honeywell Automation, BOC India, Bharat Bijlee, Wheels India, and Swaraj Engines.

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