All-time Highs on Diwali - Sainik

Last week was truly historical. Both the Sensex and Nifty hit all-time highs, and that too on Diwali day. The Coal India listing has brought great cheer to everyone around. Hopefully the retail investor too will be happy.

On this auspicious day, everyone was concerned that the retail investor was the only one who had not joined the party yet. It is certainly a strange phenomenon that this is a rally where the domestic investors have been net sellers throughout the year. This has never happened before.

I wonder why. Nobody seems to have the answer, not only here, even in the US, the retail investor has been on the net selling side. The same goes with the corporate insiders too.

Well, the market teaches us new things all the time. Not looking back at the week gone by, the RBI raised the interest rates as expected but market reaction was muted. No selloff, no euphoria, at least on the day it was announced.

The most remarkable decision was that of the US Federal Reserve in which it justified that the rise in the US stock markets meant that their decisions were on the right track.

It is pertinent to point out that every one in authority, including former Fed chiefs–Greenspan and Volcker–have been very critical of the Fed's Quantitative Easing (QE).

Criticism has also come from countries as diverse as Germany to China and through a very subtle rebuke from our own RBI governor too. Yet, Bernanke went ahead and did what he wanted to do, and for the first time ever, he went to the press to justify why he had done so.

All the giants of the financial world are very scared of this decision. The immediate impact being higher asset prices, which would make everyone who owns the underlying assets very happy, however what about the long-term implications? Already there are a growing number of voices fearing the inevitable. Bernanke is supposed to be fighting deflation and in the process he might have created a new monster: Hyperinflation. Time will tell whether Bernanke is a hero or a villain.

Closer home, this week would be very interesting.

The strategy would be to buy into weakness during the latter part of the week and early part of next week. The period November-January has traditionally been very profitable for the Indian markets.

The areas which one may want to concentrate would be oil and gas and pharma. Of course, banks and autos could be bought but one should be very choosy. Small private sector banks should be a part of one’s portfolio.

In commodities, gold and silver look very attractive, probably more attractive than stocks at this point of time.

In currencies, Dollar has the best chance to strengthen this time around.

Whatever you do, hope it is profitable.