Sensex set for crackling Diwali

September ,for Dalal Street investors, was an unusually good month, raising hopes of a better Diwali in October after two consecutive
years of subdued celebrations.

During the month, sensex gained in 14 of the 20 session and added 1,461 points, or 9.3%, to 17,127. Brokers and dealers admitted that much of these gains came on the back of liquidity, the inflow of money from abroad.

BSE data showed that so far this month net buying by FIIs in the secondary market alone was at a whopping Rs 18,200 crore, nearly $4 billion . On Wednesday alone, FIIs net bought stocks worth over Rs 1,000 crore. Sebi data showed net FII buying in 2009 at $12.2 billion, the second highest yearly inflow ever for the Indian market.

However, going forward there could be some correction, market players said. “October is a short month, and one would be wary of the latest move in the index, which has been very fast,’’ said head of a domestic brokerage.

“Redemption pressure on hedge funds has been increasing as the one year moratorium since last October is just getting over. Based on cues from the US, one would not be surprised to see a correction of about 10%, to say 4,600 nifty by end of October , which is healthy in our view,’’ the brokerage head added. On Wednesday, nifty ended at 5,084. The day’s session saw banking stocks rallying ahead of most.

Dealers said RBI’s decision to keep government borrowing within the limits indicated at the start of the fiscal year boosted confidence that the benchmark yield on 10-year government securities, which determines the interest rate
in the economy, might not rise much. While SBI ended 5% higher at Rs 2,196, it also scaled a new 52-week high level during the day. ICICI Bank too rallied, closing 4.6% higher at Rs 905 and HDFC Bank ended 2.1% up at Rs 1,642. BSE’s banking index ended 3.7% higher.

Despite the day’s strong gains, on BSE, winners outnumbered laggards by a narrow margin. Compared to 1,598 advances, there were 1,183 declines. With the Bharti Airtel-MTN deal off and the US markets showing weakness in early trades, the market could witness some correction on Thursday.