The domestic bourses continued their buoyancy from the previous owing to market sentiments turning positive with both benchmark indices closing with robust gains. Rupee continued to rally the week ending at 48.68, 1.5% higher for the week and retracing 10% from the lows of 53/dollar.

Realty, metal, auto and IT remained the lead performers while oil & gas and power, too, supported the indices well. The Sensex was up 2% while the Nifty gained 2.2% during the week. The CNX Midcap index was up 3.3% and the BSE Smallcap gained 3%. The BSE Auto index was up by 3.6%, BSE Oil&Gas gained 1.5% while the BSE Power closed with 1.6% gain over the week. The BSE IT was up 3.13%, BSE Metal gained 3% and BSE Realty closed with 4.5% gain. The top Nifty gainers during the week were DLF, Sesa Goa, Tata Power and Hero MotoCorp.

PMI numbers for most economies signal expansion in manufacturing activity for the month of January 2012 over December 2011. China PMI for January stood at 50.5, India at 57.5 and Eurozone at 48.8. Globally, employment data was positive too. According to Labor Department US, Nonfarm payrolls jumped 243,000, as factory jobs grew by the most in a year. The jobless rate fell to 8.3% - the lowest since February 2009 - from 8.5% in December. According to Thomson Reuters I/B/E/S data, 60% of S&P companies have beaten analyst expectations in the earnings season.

The Nasdaq hit a 11-year high as optimism grew that the labor market is on a steady path to recovery. The US economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to nearly a three-year low of 8.3%, the government said. For the week S&P 500, Dow Jones and Nasdaq were up 2%, 1.5% and 3% respectively.

We believe after the recent rally in domestic markets, profit booking seems prudent as there are global uncertainties. RBI has already cut the Cash Reserve Ratio (CRR) by 50 bps to inject liquidity to the tune of Rs. 32,000 crores in the banking system. This, accompanied by planned open market operations (OMOs), is likely to ease stress on the short term money rates. At the current level of 17,604, 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 Bank of Baroda, Yes Bank, Mahindra Satyam, Jammu and Kashmir Bank, Bank of Maharashtra, Andhra Bank, Pratibha Industries, IFCI, Honeywell Automation, BOC India, Fairfield Atlas, Bharat Bijlee and Wheels India.

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