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Jayanta Mallick

THE Reliance group, which in the past had come to the rescue of the capital market, last week may have provided the clue to a possible stock market recovery.

According to Mr Ramesh Damani, a market analyst, the reported gas find by the Reliance group in the Krishna-Godavari offshore basin is a potential trigger for the market. However, he preferred caution in terms of predicting the real impact of the news on the short-term growth potential of the RIL stock.

"It's a tough call. But going by the volume spurt in the index heavyweight ever since the news was broken and confirmed last week, one can safely say that the development has created room for optimism in the market," Mr Damani observed.

According to him, the RIL stock may lead the market along with few other large cap stocks such as Tata Steel, Infosys and SBI.

He pointed out that the Reliance news came at a time when some of the market players were airing apprehensions about returns to the investors from the group. The group's infocom venture, which would is set for a nationwide launch on December 28, already has investments lined up with fairly long gestation period, he admitted. The group has also committed investment in the retail petroleum business.

A section of the market participants felt that another heavy dose of investment over the next three to four years on the gas venture might draw heavily on the group's resource mobilisation capacity and servicing of their borrowings.

But, despite Dhirubhai's absence, many in the marketplace would like to repose faith in Ambanis' uncanny knack for pulling off a surprise. "With the group's size and strength, it would be reasonable to think that Ambanis would have difficulty maintaining the earning ratio," Mr Damani commented.

In his opinion, the market has given up on the divestment trigger. "However, the second quarter results of a bunch of pivotals such as Infosys, SBI and Tata Steel seem to have generated some kind of confidence in the market. One can look forward to the week with guarded optimism," he added.

The trading volumes have improved last week. He foresaw retail money trickling in as the week progressed. A mild rally is not unlikely, he said.

"'Obviously the speculators are likely to take the lead followed by retail investors, including traders". Mr Damani felt the domestic and foreign investors are likely to be the last to join the recovery trail.

According to Mr Saumil Trivedi, a technical analyst, last week's trading was significant as it probably threw up a major bottom for the Sensex. "This means that one can now take an investment view in this market. The strategy should be to buy on the declines or in other words, buy and sell rather than sell and buy," he observed.

According to him, the extent and duration of advance ahead will depend on the ease with which the Sensex is able to cross the immediate resistance levels of 2,966, 3,040, 3,050, 3,070 and 3,100.

"However, the risk-reward ratio for a medium to long-term investment is extremely favourable, if one sticks to the discipline of viewing 2,790 as strict stop-loss," Mr Trivedi opined.

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