Mid-caps are likely to be more profitable options

The Sensex finally set a new all-time intra-day high, crossing its previous best of 14724 on July 2 by 21 points. The previous high was reached on February 9 (14723.88, intra-day). The fact that the Sensex took five months to get back there shows that there has been an uptrend, albeit a sluggish one.

However, the Sensex is not representative of the market in this case. The CNX Midcap index took only three months to clear its February 9 intra-day high, and is already 10% above that level.

Most global markets are also going through sluggish rallies. Their behaviour is significant, as global market trends are proving to be a larger influence on our stocks than local factors. This is not surprising, as FII activity has been typically equivalent to more than half the day’s volume on the NSE.

With FIIs following a global investment policy, events like the Sensex touching a new all-time high would have little or no impact on their actions in our market. So, even though the new high would have a large impact on the day’s news, the Sensex itself would be more likely to continue moving in the same manner as it has been doing recently. Global markets have been in a persistent bull run all year.

The only development that appears to occasionally spook the rally is the fear of an interest rate hike in the US. We could thus see a global correction (and following it one here as well) as and when the Fed actually raises the US rate.

So, for the moment we will probably see the main indices (the Sensex and the Nifty) making unspectacular progress, but setting new highs all the same. The mid-cap index has some momentum on its side, suggesting that the more profitable opportunities are in the mid-caps while the rally lasts.

The rally has ensured that the market’s intermediate (mid-term) trend has remained up since early May. The levels below which it could end currently stand at 14407 for the Sensex, 4236 for the Nifty, and 5809 for CNX Midcap.

With the indices making new highs, the market’s long-term trend is clearly up – which is the same as saying that we are in a bull market.

The bull market would end if the Sensex were to close below its last intermediate bottom of 13550. The equivalent danger levels are 3980 for the Nifty and 4655 for the CNX Midcap.