The Nifty edged up 1% last week, thanks to the pullback on Friday, which saw it close at 6011 levels. The 50-share index continues to be in a broader range of 5700 to 6050.

Any upswing in the market should be shepherded by leading sectors and on buying by institutions both foreign and domestic but these two criteria have been shaky at best. Niftys current upward momentum from 5850 to 6011 is being led by metals and technology stocks , whereas financials, autos, oil & gas, infrastructure, construction and capital goods companies have underperformed the market.

An upswing in metal prices, which are key inputs for most sectors in the economy , can only fuel inflation further, and that is bad news for the bulls. Given the rising oil prices and strengthening interest rates, automobile stocks, which have outperformed sharply in 2010, are the latest group to join the growing band of underperformers .

Rising metal and fuel costs,firminterest rates and surging food prices continue to distort inflation. These factors are likely to further de-rate stocks, particularly those in the banking sector. The only bright spot on Dalal Street is the technology sector, which should continue to outperform, thanks to the improving economic fundamentals in the United States, which is the biggest market for such services. Indias technology companies score top marks on performance and corporate governance and, given a conducive US economy, they are likely to perform superbly.

Keep an eye out for infrastructure and engineeringcompaniestheymaygetalegup in the forthcoming budget as investments are not picking up in the economy. Another pocket of strength could be the mid-cap stocks space as it is beginning to show some upside after the recent thrashing . Quality mid-cap stocks may go up 20-25% till the budget.Thisisthebigcontrarian call for 2011, where risk is extremely low.

Stocks related to the Railways sector begin to do well this time of the year and extend their rally till the rail budget. Also, non-rate sensitive, small ticket consumption themes will continue to do well in the short term. Given these opposing forces in the economy, we expect large-cap indices to broadly remain range-bound .

On a weekly basis, amongst the tradable indices, the bias on Nifty is positive above 5878; positive on Bank Nifty above 11449; positive on CNX IT above 7289, which remains the strongest, followed by Nifty and then the Bank Nifty.

Finally, another word of caution. Historically , January has mostly been a down month for Indian markets, so keep that in mind.