The present rally will sustain as long as FII (foreign funds) liquidity continues. They have been net buyers in Indian equities in the cash segment for 20 days in a row. In fact, on Thursday they made their largest ever net purchases since the middle of May of a staggering sum in excess of Rs 1800 crores.

The reasons for this are not far too seek. Ever since the Fed put on hold its bond buying programme in September surprising markets, Indian stocks have rallied. Foreign funds have been purchasing aggressively on the hopes that Fed easing would be shifted beyond 2013.

Analysts are of the opinion that the markets would continue to rally as there are hopes that the liquidity would continue at least until the early part of the next year.

This week there was sudden interest in PSU banking stocks following a good set of numbers from Bank of India. In fact, analysts believe that the bad asset quality of PSU banks may now have peaked.

Clearly, in the next few weeks there may be a sectoral rotation as investor might now look to stocks in the steel, and PSU banking space which have been ignored so far.

In fact, stocks like Reliance Industries, Bharat Heavy, Larsen and Toubro, State Bank of India, Bharti Airtel, Tata Steel and several other stocks are nowhere close to their peaks of 2008.

The broadbased market including several mid cap stocks are still languishing. PSU banks are nowhere near their peak levels and so also for stocks from the real estate and steel sector.

It's time for a more broad based rally rather then merely few IT and pharma stocks.

GoodReturns.in