The second major step is the allowance given to the foreign institutional investors (FIIs) to provide forward cover to their equity investments in India. FIIs can now provide forward cover for 15 per cent of their investments as on June 11, 1998. The FIIs are already allowed to fully provide forward cover to the investments made after June 11.

The RBI has promised to allow, over a period of time, hedging of 100 per cent of FII equity investments. This should be good news as the FIIs will have a major cushion against any depreciation in the value of the rupee in the future.

The central bank has also taken steps to limit the influence of the speculators and prevent them from causing further deterioration in the rupee value.

Last week we expected the market to turn bearish once the level of 2,950 points had been breached on the downside. Once the low of 2,950 points was crossed, the market saw a free fall to the level of 2,938 points. The level of 2,820 points was reached by the index in the last week of January 1996.

The index has come a full circle in a span of two-and-a-half years. To a distant observer the market has not shown any improvement in value in the last two years. But for those who are involved in the day-to-day mechanics of the market, the index has shown six moves during this period, both up and down, with each move showing an appreciation or depreciation of more than 1,000 points.

During the week a `doji' appeared on Wednesday. This was followed by a long white candle suggesting that the pressure on the downside would be limited. Readers may recall that the last time we had hinted on the appearance of a `Morning Star', but the pattern failed. The appearance of a doji during the week followed by a long white candle almost immediately after the appearance of the `Morning Star' suggests that the market is poised for a turnaround.

On the weekly charts the index has formed `hammer'. This is also a bullish pattern. Confluence of a series of bullish signals suggests that the market is expected to rise.

The indicators have shown a positive divergence. The lower-end low in the value of the index has not been confirmed by a low lower low in the indicator. In fact, all the three indicators: MACD (Moving Averages Convergence Divergence), 14-day RSI (Relative Strength Index, not shown here) and 12-day ROC (Rate of Change, not shown here) have shown a similar behaviour.

The MACD trigger line is on the verge of giving a buy signal. The indicators are showing that the market is likely to show a rally. We expect the market to rally but it is not likely to show a runaway rally. We are still in a consolidation phase and it is likely that the index could face selling pressure at the level of 3,300 points. Traders may consider to be on the long side of the market.

Balrampur Chini: Bullish trend

The stock is currently just above its rising trendline. During the week the stock showed a small appreciation in the price. However, the volumes have picked up. The stock does show a potential to rise up to around Rs 175. One may consider buying this stock at current levels. Keep a stop loss below the level of Rs 100.

Innovative Software: Good potential

During the week the stock showed a substantial increase in price accompanied by an increase in volumes. Software stocks have seen a solid boom and this one may be a late arrival to the party. One may consider buying this stock at current levels. Keep a stop loss below Rs 9.

Digital Equipment: Buy at current levels

This stock is currently at a 50 per cent retracement level from its June 1998 low of Rs 93 to the recent high of Rs 175. At this point it is an excellent chance for the investors to enter. One may consider buying this stock at current levels for a short-term target of Rs 175. Keep a stop loss below Rs 128.

Traders' choice:

MTNL: Buy long

Currently, the stock is poised close to its low of Rs 175. Traders may consider buying this stock as close to the low as possible. Keep a stop loss below the level of Rs 175.

Reliance: Buy long

This stock has been badly hit in the recent past. There has been a sizeable pick up in volumes in the last couple of days. This stock is expected to rise. Traders may enter long. Keep a stop loss below Rs 105.