Sensex hits 16,000: The India Street Special Report

By Sundaramurthy Vadivelu

Bombay Stock Exchange

In mid August, the emerging markets were reeling under selling

pressure and the reason attributed to it was US Sub-prime mortgage
crisis. Today, the BSE Sensex opened at 15940.79 and within seconds
it began to trade above 16,000.
The anchors of premier business television channels were full of smile
and the Indian and foreign fund managers were of the hope that
Sensex and India stock market are poised towards higher growth. The
reason for today’s grand opening was reported to be Federal Reserve
cut its benchmark lending rate by half a percentage point to bolster
growth in the world's largest economy.

After recording a high of 16335.30, the Sensex finally closed at

16322.75, gaining a whopping 653.63 points or about 4.17%

Among the Sensex stocks HDFC, HDFC Bank, Bharti Airtel, ONGC,
Maruti Udyog and Reliance gained more than 5% while not a single
stock was among the losers.

In June, I was interviewed by The India Street about Sensex reaching

16000 before the end of this year.

TheIndiaStreet: Would you be surprised if the India Stock Market Index

went on to break 16,000 this year?

Sundaramurthy: No, certainly not. When 4000 can become 14000,

why not another 2000?

Indeed, I was NOT at all surprised today about Sensex reaching 16000.

In fact, in my very first weekly review of Indian stock market I wrote:

“However, the weekly chart shows that there is an ascending triangle
breakout with a triangle height of about 690 points. This when added
to 4245 gives a target of 4935”.

Road to 16000:

For those who are interested in statistics about how Sensex has
managed to reach 16000 from about 3000 in April 2003, the following
chart shows the milestones and number of trading sessions utilized for
each milestone.

Sensex 16000 break up

16335.3
15007.22
18000 400
367

14028.47
16000

13039.3
350

12053.74
11017.25
14000
300

12000 10002.83
9005.63

250
8060.26

10000
Sensex

7001.55

200
6034.38

8000
5068.66

144
4026.27

132 150
6000
3089.6

96
100
4000
53 55 53 48 52
41 50
2000 29 26
19
0
0 0
04/ 03 08/ 03 11/ 03 01/ 04 06/ 05 09/ 05 11/ 05 02/ 06 03/ 06 04/ 06 10/ 06 12/ 06 07/ 07 09/ 07
Date

Sensex Trading Sessions

http://groups.google.com/group/theindiastreet/web/SENSEX_BREAKUP_19090
7.jpg

The Sensex took 367 sessions to reach 7000 from 6000. This is the
longest duration it has taken to gain 1000 points. This is followed by
144 (14000 – 15000) and 132 (12000 – 13000). The least number of
sessions of course was 19 (11000 – 12000).

One important point to note here is that as the Sensex reaches the
milestone faster, the next milestone is slowed up. Compare the 96, 53,
41 sessions; next milestone took 367 sessions. 48, 29 and 19; next
milestone took 132 sessions. 26; next milestone took 144 sessions.
The current 52 sessions look probably reasonable, so we may think of
17000 in near future.
Most of today’s top gainers were sugar stocks – many of which have
fallen badly in the last 18 months. The media reported that the sugar
stocks witnessed heavy buying as the Government announced that
sugar mills might be allowed to produce ethanol directly and will be
able to sell it at Rs. 21.50 per litre.

We shall now analyze the Sensex stocks and how they performed
compared to Sensex between 15000 and 16000.

Scrip Close Close %

06-Jul 19-Sep Change
REL 597.95 946.10 58.22
RELIANCE 1,711.4 2,172.9 26.96
5 0
BHEL 1,555.8 1,927.9 23.91
5 0
HDFC 1,916.0 2,354.1 22.86
5 5
NTPC 155.40 189.50 21.94
ITC 155.50 186.85 20.16
GRASIM 2,773.1 3,327.9 20.01
5 5
TISCO 623.15 744.70 19.51
BAJAJAUTO 2,108.5 2,512.4 19.16
0 0
MARUTI 795.85 925.85 16.33
HDFCBANK 1,153.3 1,326.3 15.00
5 0
SBIN 1,550.1 1,770.0 14.18
5 0
RANBAXY 361.95 412.90 14.08
LT 2,364.5 2,669.7 12.91
5 5
GUJAMBCEM 131.25 147.60 12.46
ACC 1,040.7 1,153.0 10.79
0 0
 Scrip Close Close %
06-Jul 19-Sep Change
HINDLEVER 199.95 217.00 8.53
HINDALCO 154.25 159.45 3.37
ONGC 879.35 901.50 2.52
RCOM 550.50 563.95 2.44
BHARTIARTL 866.40 886.30 2.30
TATAMOTORS 710.60 722.20 1.63
ICICIBANK 981.55 970.40 (1.14)
DRREDDY 672.50 645.05 (4.08)
M&M 787.35 740.95 (5.89)
INFOSYSTCH 1,971.2 1,853.3 (5.98)
5 0
TCS 1,159.0 1,022.4 (11.79)
5 5
SATYAMCOMP 489.20 429.50 (12.20)
WIPRO 519.45 448.15 (13.73)
CIPLA 212.10 169.50 (20.08)

Reliance Energy Limited was the top gainer during this period with
58.22% increase while Cipla was the worst loser, having gone down by
20.08%

While the Sensex gained 8.85% (high basis) between July 6 and
September 19, 14 constituent stocks gained below that value.
http://groups.google.com/group/theindiastreet/web/SENSEX_INTRA_190
907.jpg
The intraday chart of Sensex shown above illustrates how bulls were in
total control of the index right through the day.

Let us now discuss the medium term trend for the Sensex.

Like the Nifty, Sensex also encountered an “ascending triangle”

breakout in the weekly chart as shown below.

http://groups.google.com/group/theindiastreet/web/SENSEX_W_190907
.jpg

We have seen earlier that it is a bullish continuation pattern and the

triangle height is 2408. This when added to previous high of 14724
gives a target of 17132 (we discussed a target of 4935 for the Nifty
earlier).

Conclusion:

Technical analysis is all about probabilities; there are no certainities. In

my last weekly review I had mentioned that a corrective decline was
likely as profit booking was seen at higher levels. The week started
with a correction and the Sensex lost 99.37 points on Monday. But, the
bulls however, have managed to break all resistances and take the
Sensex past beyond its previous high as well as 16000. It is yet
another good sign for the Indian stock market. Now the folks may
believe that the US Sub-prime mortgage crisis, or for that matter any
other crisis, is just media’s attempt to find causes for
corrections/declines.
Sundaramurthy Vadivelu
LABELS: BSE, SENSEX, INDIA STOCK MARKET

Suggested Reading

• Weekly review of Indian stock market

• Weekly Review of India Stock Market
• How will the US sub-prime mortgage crisis
effect the Indian stock markets?
• An Interview with Sundaramurthy Vadivelu,
Analyst for The India Street
• Stock of the week: Hindustan Unilever
Limited
• Stock of the week: Videsh Sanchar Nigam
Limited VSNL
• Stock of the week: Dr.Reddy’s Laboratories
Limited
• Stock of the week: Bharat Heavy Electricals
Limited
• Stock of the week: Infosys Technologies
Limited
• Stock of the week: Reliance Energy Limited