Global markets rallied to new highs on Tuesday, as the Indian markets remained closed to mark Gandhi Jayanti.
Will the Indian markets be in a hurry to make up for the holiday and double its gains on Wednesday? Except for liquidity and sentiment, there are no other guiding factors to move the market and both these factors have been crucial in the upward rally from September 17.
The global cues on Tuesday clearly suggest a continuation of the rally. With crude oil trading at below $80 a barrel it could only add to the good news.
Surprisingly, the bad news from American banking giant Citigroup slashing third-quarter profit estimates by about 60 per cent and Zurich-based UBS writing off $3.4 billion losses boosted market sentiment. It is on the belief that the worst is over and the remaining bad news from the sub-prime crisis has now been discounted.
The skeptics are still out on the probability of the US going into a recession next year, yet the Dow index touched a record 14,087, up 191 points, on Monday. Currently, the gains seem be centering around on the possibility of another rate cut by the Federal Reserve in its next meeting on October 31.
The price-earnings ratio of the Sensex has moved up from 21.11 in the beginning of September to 23.36 by the end of the month. However, it remains to be seen how much more the ratio can expand.
Financials have around 22 per cent weight in the Sensex and they have already been major contributors to its move upwards. Information technology has around 13.5 per cent weight and in this Sensex rally of over 5,000 points, from a 52-week low of 12,178 on October 4 last year, the sector has been flat. There is not much time left to guess the kind of guidance coming from IT companies when they announce their second-quarter results as the earnings season is just around the corner.