Break out is possible?

Our market has been hovering in a narrow range of 200 points (Nifty) for many days now. Second stimulus package to be approved by US Senate and the Interim Budget to be presented in Indian Parliament in the coming week are expected to take the market beyond the range upwards.

Week that was

Worse than expected US GDP data resulted in a negative opening for our market. With the corporate results were almost over, the traders were clueless on the future direction for the Nifty. Hence, market was stuck in a narrow range. Trading volumes dried up. As expected, Nifty took a strong support at the levels around 2750 points.

Sudden spurt in inflation in the previous two weeks surprised many market pundits dampening the rate cut hopes. Stocks from Interest rate sensitive sectors like Auto, Banking and Realty were sold off. Worse than expected results from DLF affected the realty counters further. There was also profit booking in the counters, which rose significantly in the previous week. FIIs sold last week in cash market however in a small way.

At the same time, cement counters were shining because of better than expected consignments. Interim judgment on KG gas favoring Reliance Industries Ltd helped the index major to post gains for the week. Nifty and Sensex ended the week with marginal loses and the breadth of the market was negative.

Week Ahead

Inflation resuming the falling trend and the announcement by RBI head brought back the hopes of another round of rate cuts. As said earlier, US stimulus package brought huge expectations from the markets across the globe. Similarly, interim budget due to be submitted in the coming week will be closely monitored by the market. There are expectations of stimulus measures in the interim budget to revive the economy. There are market expectations that the Nifty range (2700-2900) will be broken this week upwards and the next targets for Nifty are 3050 and 3200 points. At the same time, market may continue to be volatile. Traders may take long positions in Nifty and largecap stocks however with a strict stop loss limit of 2750 points.

With the emerging markets posting gains for the second week in a row, Dollar is expected to weaken against the emerging currencies. Base metals and crude may strengthen based on the US stimulus measures. Gold may weaken in case the stock markets do well.

Wish you a happy week ahead.

Disclaimer: This is only for information and not a recommendation to buy any stocks. Investments in shares are subject to market risks and investments should be on own risk.

Satyam Shivam Scandalism

Just when it appeared as if everything is all right for the New Year 2009 and the market heading for a solid recovery, Satyam Scandal spoiled the party. Sentiments of the market were totally shattered by the Satyam disclosure which is evident from the 1000 points fall in just two trading sessions. Government initiated certain measures to revive the Company after the trade hours on Friday. Hence, the market reaction for the measures will be closely followed in the next week.

Week that was

Market opened positive for the week because of stable global outlook and bullish local sentiments. Sensex hit a seven-week high and more importantly the small and midcap stocks were performing quite well. As said earlier, Satyam Scandal came as a shock to the market and the Sensex lost as many as 1000 points in no time. Breadth of the market turned extremely negative. Market started looking suspiciously many companies who are on the edge. Delay by the Central Government in initiating action against Satyam Promoters has further dampened the market sentiments. 10-month low inflation data and fall in crude oil prices did not get noticed by the market. Realty sector was the worst hit for the week followed by Consumer Goods sector and IT sector. Cement sector and Auto sector were the better performers for the week. Satyam stock was the worst hit which lost more than 86% in just one week.

Week Ahead

I expect that the arrest of the Satyam ex Chief and formation of new Board of Directors by the Government may improve the market sentiments to some extent. However, worse than expected labor data in US may not go well with the market. Resumption of FII outflows may also hit the sentiments of the market. Quarterly corporate results will be viewed hereafter with distrust only. IIP data due to be announced next week may have a limited impact unless there is a positive surprise. To sum up, market is likely to be heading downside next week unless there is any miracle.

Resistance levels are

Sensex - 9650-9750, 10200-300,
Nifty - 2940-2970, 3130-60

Support levels are

Sensex - 9100-9200, 8650-8750
Nifty - 2780-2800, 2675-2700

Traders may initiate short position in case Nifty closes below 2780 levels and long position above 2950 levels on a closing basis however with strong stop loss limits.

Investors may consider investing in top Public Sector Banks and Public Sector Companies with proven credentials in case of market fall on a long term basis.

Rupee is expected to weaken further against the US Dollar and move between 47.50 and 49.00. Its direction will depend on the factors discussed above.

Happy Week Ahead

India Resilient?

Rescue Packages announced by the Government of India and Reserve Bank of India helped our market to post significant gains during the last week despite the negative IIP growth and Rejection of “Bail-out Auto Package” by the US Senate. Global cues particularly US cues were generally negative during the last week.

Week that was

Market opened positive for the week because of rate cut announcements by RBI and the stimulus package of the central government, which included some tax relief measures and incentives for exports. Inflation falling to 8.00% and contraction in IIP has given fresh hopes of some more rate cuts by RBI and more action from government to revive the economy. Sensex and Nifty gained around 8% for the week. Realty sector was the biggest gainer during the last week on the hopes of some more rate cuts and relaxation of bank norms on lending to housing sector. Banking sector was also one of the major gainers for the week. Metal stocks went up sharply because of the strong results from Tata Steel and export relief measures announced by the government. Oil and Gas sector was also up because of the speculations that the KG gas issue may be amicably settled soon.

Week Ahead

As we expected in the previous week, Sensex closing well above 9350 points is positive news for the market. Rise in the market with strong F&O open interest is another positive factor for the market. Net FII inflows for the week has also improved the sentiments of the market. Hence we may expect that the market will be positive during the next week also. Fate of Auto Relief Package in US Congress, Federal Reserve’s decision on further rate cuts, fresh RBI/Government measures to revive our economy will impact the overall direction of the market.

Technically the Resistance levels are

Sensex - 9750-9850, 10200-300,
Nifty - 2980-3030, 3140-60
Technically support levels are

Sensex - 9350-9450, 8700-8800
Nifty - 2800-2810, 2675-2700

Traders may initiate long position at current levels and at around 9350 levels and short position around 10200 levels. Trading positions should be with strong stop loss limits.

Rupee is expected to strengthen further against the US Dollar and move between 47.50 and 49.00. Its direction will depend on the factors discussed above.

Happy Week Ahead

Sleepless Nights

Crisis in the “Never sleeping Citibank” brought sleepless nights for the equity markets across the globe. There were speculations in the markets that Citibank was about to become bankrupt any time soon. Such speculations were not without reasons. Citibank announced that it would downsize its workforce by 53,000. Its share price crashed in US markets in the last week. Announcement by the US President elect Mr.Obama that the Head of Federal Reserve Bank of New York would be the Treasury Secretary of his cabinet brought some cheers in the market on the last day of the week.

Week that was

Our markets were showing negative trends throughout the last week except for the last day’s surge taking cues from Global markets. Major global markets were very much negative during the week and many of them hit fresh lows of the year. Official confirmation of recession in Japan and few other countries helped the bears to have a complete grip over the market.

In India, Rate cut talks and moderation of inflationary expectations did not help our markets much that closely tracked the global events. Prime Minister’s request to the corporate to cut the prices to revive the economy did not go well with the market. Even though crucial line of 8900 points was broken during the week, the last day’s last hour surge helped the Sensex to close above the line of 8900 points bringing in some hopes.

For the week, Sensex lost around 470 points (5.10%) and Nifty lost around 120 points (4.16%). Once again, the Realty sector was the worst hit followed by Banking and Metal sectors.

Crude Oil prices went below $50 during the week. CBOE Vix peaked at 80 during the week and then had a fall during the last trading session of the week.

FIIs continued to sell in Indian markets and our Forex Reserves further came down to $246 billion dollars. Inflation had fallen to 8.90% from the previous week level of 8.98%. Indian Rupee weakened further against US Dollar because of FII selling, surging import needs and NDF market arbitrage.

Week Ahead

Last day of the previous week witnessed a rise for the indices with a high F&O volume indicating that the short-term trend will be positive. Fall in CBOE Vix (US) also supports the view as the global volatility may come down in the immediate future. Even though there are fears of a possible Citibank bankruptcy, markets are now in an oversold zone and there may be short covering and bottom fishing at every lower level.

There are strong bets in our market on a possible rate cut by RBI, as there is a moderation of inflationary expectations, which may help our indices to stage a brief relief rally.

This week, Sensex may march towards 9400 levels breaking which to 9800 levels. In case of any bad news from US, the downside targets are 8400 and 7800 points.

Rupee may consolidate around 50 levels with a positive bias, as the immediate expectations on our equity markets are positive. Further direction will depend on the movements in NDF markets and Equity markets.

Investors may look into stocks of public sector banks, which may be benefited by the probable rate cut with a long-term view. Similarly, Oil Marketing Companies, which are going to be benefited by the fall in international crude prices, may also be good bets for long-term call.
Wishing you a happy week ahead.

Slope of Hope?

A classical Bear market always keeps the “Hopes of Recovery” alive by not allowing them to become a reality.

Week that was

Every thing looked fine at the start of the previous week. There was a massive stimulus package announced by China. Dollar demand across the globe had eased down. Pace of FII outflows from Indian markets had slowed down. Global cues were better. Local sentiments improved. Helped by the above factors, Sensex rallied to the levels above 10500 points at the start of the week itself.

Huge sell-off came thereafter. Sensex lost more than 1000 points from the top it formed for the week and ended with a net loss of 580 points (5.81%) for the week. Better than expected IIP numbers (4.90%) for the first half-year (2008-09) and surprise fall of Inflation rate to single digit (8.98%) failed to arrest the losses for the week. Realty Sector was the worst affected with a weekly loss of 14% followed by Capital Goods Sector.

US economic data released during the week confirmed that US is in the grip of recession. Also, there were doubts in the minds of investors regarding the continuity of support to the Wall Street after the regime change. Nasdaq lost as much as 8% and Dow Jones lost 5%. Other major Global Indices barring China also faced big correction during the week.

Rupee witnessed one more fall because of renewed demand for US Dollar. Crude Oil continued its downslide.

Week Ahead?

G-20 meeting has come out with a set of sweeping plans to revive the world economy. Efficacy of these plans is yet to be known as an outgoing US President headed the meeting and the incoming US President did not participate in the meeting.

Surge in CBOE Vix (Volatility Index) and NSE Vix indicate that there will be huge volatility in the coming week also. Technically (as we mentioned in the previous week) Sensex has already broken the important support line of 9600 points and closed well below it. Other technical indicators also point out that the downtrend may continue in the coming week also. However, with the Inflationary expectations moderating, any RBI action in bringing down the interest rates may be a positive factor for the market.

Sensex may find a technical support around 8900 points and a resistance around 10200 points. Traders may consider taking opposite position on extreme situations however with strict stop losses. Investors may consider entering into ETFs (Sensex and Nifty ETF) at the levels around 9000 points with a long-term view.

Rupee is expected to be consolidating around 50 levels and much will depend on FII action and RBI intervention.

First Phase of the Downtrend is Over?

Till some times back, every thing looked all right. Stock markets were scaling new highs. Real Estate prices were hitting the sky. Employees were enjoying hefty bonuses and huge pay hikes. India was talking about double-digit growth.

Whatever happened then looks like a dream now because of the Subprime crisis and the consequent global recession.

Since then, stock indices have crashed out. Metals have plunged down. Real Estate prices have been brought down to earth. Multinational (Investment) Banks went bankrupt. Jobs are being lost. Governments are supporting the Banks by providing capital. Central Banks are cutting interest rates drastically and pumping in billions of dollars into the system to ease out liquidity crisis.

As of now, panic level has come down in the financial markets, which appear to be finding a bottom for the time being. Dollars are more freely available in the international markets and LIBOR level has come down significantly.

Experts feel that the first phase of the downtrend is over for the time being. The second phase will be impacting more on the economies rather than the financial markets.

Second phase of the downtrend may witness the bankruptcy (i.e. not able to service the Debt and support the imports) of countries like Argentina, Hungary and Pakistan. IMF has already stepped in to save these countries. Global economy will be slowing down in the immediate future.

Now let us review our markets.

Week that was

As we expected, there was a sharp rally in the in the equity market for the first two days supported by cutting of interest rates by the central banks across the globe and FII inflows. However with the global markets turnig negative after the US elections were over and our weekly Inflation (10.72%) being much higher than the market expectations, Sensex was not able to cross the resistance level of 10750 points decisively. Huge sell off was then witnessed taking the index back to 9600 levels. Still, Friday’s small rally of 230 points helped the Sensex to close positive for the second week in a row. The positive news for the week was the return of FII flows into our markets. Bad news is that the series of economic data released in USA confirmed that USA is grip of recession.

Rupee rallied against US Dollar after hitting a historic low of 50.15 levels in the previous week. However the bad news is that the Forex Reserves of the country dipped by another $5.5 billion for the week ended 30.10.2008.

Week Ahead

As we mentioned earlier, the panic level has come down and there is some sort of stability returning to the markets across the globe.

Arrest of FII outflows and rather some inflows into our markets too have improved the underlying sentiments

Technically, Sensex can again rise to the levels of 10800 points breaking which it may move towards 11800 points. Only precondition is that it should hold above 9600 points and in case of any fall below that level it may retest 8900 levels once again.

Traders are suggested to take position according to the global movements however with strict stop losses.

Investors are suggested to buy some blue chip stocks and public sector banks with a 3-5 years time horizon at fall, as there is limited down side from here onwards.

Rupee may consolidate around these levels as (already mentioned) there is easing of dollar demand in the international markets.

Have a nice week ahead.

Interest Rate Cuts are in the Interest of the Nation?

Nowadays, RBI’s moves have become more predictable which appear to be just following the signals from the finance ministry. There has been a cut of 3.50% in CRR (the money, banks have to keep with RBI in cash), 1.50% in Repo Rate (the rate at which Banks borrow from the Central Bank) and 1.00% cut in SLR (the money, banks have to keep in statutory liquid assets) in the last few weeks alone.

Let us discuss hereunder whether these monetary measures can actually help the country in coming out of its economic slow down blues or these measures are simple paracetemol doses given to cure (tranquil) the cancerous diseases.

First of all, let us understand the economic problems that we are going to face in the near future because of the (current) global recession.

Ø There will be a fall in demand across the globe and our exports may be hit. BPO and BFSI segments of our IT sector may also be hit.
Ø Rising of new capital funds by our corporate will become more difficult in the absence of vibrant stock markets and FII inflows (Capital formation is key to sustain growth of any developing country).
Ø Business confidence will come down because of fall in demand and difficulties in rising funds. New businesses as well as expansion of existing business may not take off in large scale. In fact, there are possibilities of downsizing/closure of many existing business units leading to job losses.
Ø Real Estate Sector will be affected because of lack of demand and Lifestyle Sector will also be affected, as the consumers may prefer to cut down their expenditures in uncertain times.

Coming back to the monetary measures as discussed in the first paragraph, pumping money into the system may not help by itself to improve the economic conditions like similar measures (not addressing to the core problem) failed in US. Throwing money into the problem is like adding fuel to the fire.

No corporate will come forward to put additional money (by borrowing) in to their businesses if they find investment is not going to be profitable because of the expected fall in demand. Also, commercial banks may not lend if they find that projects are not viable even if their margins are good. As the Money growth (M3) is already at very high levels, cutting interest rates may make it more difficult to contain inflation in the immediate future.

To sum up, the real problem of today is not the scarcity of money but the risk appetite among the investors because of the lack of confidence in the growth of the country.

On the other hand, there are certain positive factors for India rising out of the current global recessionary environment.

Ø India is basically an import-oriented country. Our growth is more of consumption oriented rather than export oriented like China. When there is a recession across the globe the price of basic goods such as oil, cement, steel and other metals will come down helping the country to reduce its import bill and indulge in more infrastructure building measures at lower cost.
Ø In case of cost cutting measures of businesses across the world, there is a possibility of more BPO business flowing to India. Indian industry can conquer new frontiers if they are able to come out with innovative products (like Nano Car) with high cost efficiency.

Further, there has been a huge economic imbalance created in the last eight years of our economic growth. Few sections of the society have been benefited much more than the masses of the country. Now we have a (forced) breathing time to think about taking the growth to the masses also.

It is the right time for the Indian government to come forward and increase its investment expenditure particularly in the infrastructure, public health, public utilities and primary education sectors, which will benefit both the masses and the industry. Further right mix of prudent monetary and fiscal measures can help us to come out of the difficult times.