Sunday, March 29, 2009

Cautiously Optimistic!

Last week, it has been a stunning rally surprising even the hardcore optimists as the bull-run continued for the third week with a bang. Well supported by the global trends, Sensex rallied by more than 1,000 points and Nifty by 300 points. Sensex closed above psychologically very important 10,000 levels and Nifty closed above 3,100 levels.

FIIs turned net buyers for the week with inflows to the extent of around Rs.1300.00 crores. Frantic Short covering ahead of the F&O expiry also helped the market to rally further. Renewed domestic interest helped the market to sustain its gains.

As we discussed last week, there are hopes prevailing in the market that the American currency, to be released into the market shortly, would find its ways to equity markets (in particular, emerging markets) and commodity markets. Accordingly, US Dollar weakened against major global currencies including Indian Rupee. There was a strong rally in commodities as well, particularly in base metals.

Revision of the global financial sector outlook, helped Indian banks to post huge gains. Metal stocks also gained in a big way during the week thanks to the rally in commodity markets and better visibility of raising demand.

As the change in methodology for calculating the movement of Nifty was more favorable to Reliance Industries, it gained in a big way. Other Oil & Gas stocks also gained on hopes of increased demand. Nano release further lifted the sentiments of the market and Auto stocks were also doing well.

Inflation fell further down to 0.27% raising the hopes of fresh cuts in interest rates.

Week Ahead

There are views that the market has already found a bottom at around 2600 levels (Sensex around 8000) and may see an interim rally, which may last, up to 3600 levels (Sensex around 12000)

Even though, there are some reasons like renewed FII inflows, fresh domestic interest, bottom fishing etc, to support the above views, one should exercise extreme caution in taking a long position as there has already been a big rally of 500 points (Nifty) and the profit booking may emerge any time soon. Further, Rupee not breaking 50 mark creates doubts on any large FII inflows in the short term ahead. As we discussed earlier, 3200 points (Nifty) may be the next target for the market.

Coming week, there are many key events such as G-20 meeting, ECB meeting on interest rates and announcement of bailout package for US Auto industry. Markets will be keenly following the outcomes of the above events. Further, there are many economic data to be released from US.

With many Indian Operators becoming quite active again, the focus may shift to small and midcap stocks. “Akruthi” chapter reminds the small investors to be extremely cautious about the abnormal movements in small and midcap stocks.

One can accumulate stocks with good valuations and high dividend yields on every dip with a long-term view. Short-term traders may go long till 3200 points however with strict stop loss limits. A fresh view can be taken after 3200 levels.

Wishing a great week ahead.

Monday, March 23, 2009

Currency is the King

Last week, US Federal Reserve announced that it would buy back over 1 trillion dollar of government debt. Though it is a bad move for the global economy in the long run, global markets rejoiced the move with the hope that thus increased dollar flow would help in reviving the world markets in the short run. Our market also joined the global party with a second consecutive positive weekly close, which is rarity nowadays.

Buy back plan resulted in weakening of US Dollar against all other major global currencies. Gold and other commodities went up in dollar terms. Crude Oil crossed psychologically important $50 levels. Reports that China was piling up base metal inventories helped base metals to post gains.

In addition to the above, positive data on housing and employment from USA resulted in a global rally in equity markets too.

Indian markets also joined the rally on the hope that FII inflows would go up here onwards. Beaten down sectors like metals and realty were the major gainers for the last week. Barring Capital Goods, almost all sectors had a positive week. Highlight of the last week was the surge in small and midcap stocks outsmarting their largecap peers.

Though the fall of headline inflation to new low levels (0.44%) raised fears of a deflationary environment, there were fresh hopes of further cutting in interest rates also.

Thanks to the huge stimulus packages announced by governments/ central banks across the globe, there is a lot of money flow into the economy and some part of it may find its way into markets also helping them to stage a relief rally.

At the same time, Nifty closing below the crucial mark of 2810 points and the Dow Jones closing below 7500 levels show that the markets are not yet fully convinced about any major revival in the equity markets. Surge in CBOE Vix also indicates that we may expect some more volatility in the market in the coming week.

As there is no major economic event in India on account of General Elections, our markets may follow the global trends particularly from USA. There is a lot of economic data going to be published in US coming week, which may set the tone for the global markets.

As we told earlier, 2810 levels (Nifty) will continue to be a strong resistance. Traders may take long position once Nifty breaks 2850 decisively however with a strict stop loss limit.

F&O expiry for March series, due for this week, may add to the volatility of the individual stocks.

Rupee may follow the global trends and it will be difficult for it to break 50 mark because of surge in crude oil prices.

Happy week ahead.

Sunday, March 15, 2009

A Bear Rally in sight?

There was a positive surprise for the Indian investors last week who expected a narrow subdued trade for the week because of the two intervening holidays and ongoing election season. Profit shown by Citibank (unexpectedly) and its chairman’s assertion that the bank would no more require government assistance spurred the sentiments of the global markets. Our markets also happily participated in the global rally. Now, we have wait and see whether this rise will turn into a bigger “Bear Rally” taking Sensex to 10000 plus levels.

Though IIP (Industrial Production) numbers (-0.50%) were negative, markets took them as positive as the expectations were still worse. Similarly, inflation falling to multi-year low levels raised fresh hopes of another round of rate cuts by RBI.

Traders who were shorting the market till then caught unaware by the sudden upsurge of the market and started covering their short positions in a hurry, which resulted in further rise in the indices.

FIIs turning to be the net buyers and the breadth (Advance–Decline Ratio) being positive were the highlights of the week. However, trade volumes were much lower which is cause of concern.

Index majors such as Reliance, ICICI Bank and SBI led the rally. Stocks from the beaten down sectors such as Real Estate, Banks and Metals gained in a big way. Auto sector also went up because of their better show of sales numbers. Sizeable order for heavy vehicles from government helped Ashok Leyland and Tata Motors to post significant gains. Sale of shares (personal holding) by one of the top executives of Bharti Airtel impacted its shares negatively.

Dollar weakened against other major currencies including Indian Rupee because of fresh hopes of revival of economy. Similarly, Crude prices went up because of the fresh hopes of higher demand for oil arising due to the increased government expenditure under their stimulus packages.

Volatility indices like CBOE Vix and Indian Vix fell sharply giving the hopes of a stable markets in the coming week. It will be quite interesting to see whether bulls can come out of the bear-grip next week and take the Nifty to 3000 levels (Sensex 10000 points).

Last week, Nifty has closed at the strong resistance levels and it has to cross these levels (2730 points) to move towards 2810 points breaking which towards 3050 points. If, Nifty fails to cross the said levels, we may witness another round sell-off dragging the Nifty down to 2500 points once again.

Traders may initiate long position in case Nifty breaks 2730 levels firmly in Monday’s early trade, however with a strict loss limit of 2670 points. 2550-2600 points appear to be a strong support for the market. PSU Banks look attractive as majority of negative news flows have been factored in.

Indian Rupee may strengthen against US Dollar depending on the further rise in the global markets. However, it will be quite difficult for it to break 50 mark.

As of now it appears that the markets may be cautiously bullish and look for further direction from US markets. Bulls have to keep in mind that the “Bear Rally” cannot last for a longer duration unless there is a major turnaround in the global economy.

Wishing you a happy week ahead.

Sunday, March 1, 2009

Uncertain Times Ahead!

Our market has shown a remarkable resilience in the last week by defying the weak global trends particularly from US and China. Even though, Rupee fell below its lifetime low levels on downgrading of rating by S&P, equity market was not affected much. Weak GDP numbers also had a limited impact on our market as the lower GDP numbers coupled with multi-month low inflation raised fresh hopes of interest rate cuts by RBI.

Duty cuts by the Central Government, rate cut hopes and better than expected results from Tata Steel saved the market from the above said negative factors. Further, there was a good amount of short covering ahead of F&O expiry due for the last week helping the key indices to post modest gains. At the same time, sell-off continued in the small and midcap segments and the overall breadth of the market was negative.

As we mentioned earlier, 2700 levels for Nifty proved to be a strong support for the market. Auto stocks were the major gainers due to the rate cut hopes and launch of Nano Car. IT stocks also gained for the week, because of the Rupee fall. Realty sector continued its downtrend. Banking stocks also fell significantly during the majority part of the week though they covered a part of their losses on the last day of the week on rate cut hopes.

Week Ahead:

Falling inflation and the pressures on the Central Government to do something before the elections may prompt a rate cut by RBI in the week ahead. Rate cut may help interest rate sensitive stocks. Reliance Industries – RPL merger may benefit RIL shareholders and the RPL shareholders may be hit. Further, raising trend in Crude Oil may help, Oil producers and Oil Refineries. At the same time, Special Audit on NIFTY Companies announced by SEBI may have some negative surprises.

To conclude, there are equally strong positive and negative news flows to the market and it may continue to move in a narrow range. It appears that there has been a lot of action in F&O segment at the Nifty levels 2700 and 2800. 2700 levels for Nifty continues to be a strong support and a firm breach, if any, would lead to a massive sell off. Similarly, 2800 points will give stiff resistance to the Nifty and in case it breaks 2830 levels, there will be a rush for short covering, taking the market further up towards 2900.

Happy week ahead.