WEEK AHEAD
WEEK: 06-08-12 to 10-08-12
Next batch of Q1 results to dictate near-term trend
WEEK
5100-5400
CRUCIAL
SUPPORT 5210 & RESISTANCE 5360
APPROACH
Trade with Trailing Stop Loss for up-move
STRATEGY
Stay with companies robust business models
MARKET TREND
Volatile
MARKET OUTLOOK
Week ahead set to be extremely volatile
FACTORS
Earning, Monsoon, Global Cues & Q1 Earning
IMPORTANT
No change in views, buy on dips
OUT-LOOK:
The indices did manage to eke out around 2% gains after being on a weekly loss for a couple of weeks. Dark clouds would actually bring joy as the focus of the nation is on the deficient monsoon. If the rain gods fail to shower their blessings adequately, India
Any positive signals from the Euro zone can provide comfort and support to the markets which remain on tenterhooks. Corporate results will continue to flow in bringing in the necessary action in those particular stocks.
As far as key data points are concerned the IIP numbers would be keen awaited on Friday. Globally too various data points will provide some cues on the current state of affairs.
The month of August is not really known for much gains or pains. At best we could remain in a tight range for sometime. In short, the coming week will continue to swing more to the global cues than any domestic affair.
PATTERN FORMATION:
The weekly 50% and 61.8% Fibonacci retracement levels of the rise from 15748 / 4770 (June 08, 2012 ) to 17631 / 5349 (July 13, 2012 ) are seen at 16690 / 5059 and 16467 / 4991 levels, respectively.
On the weekly chart, we are witnessing a "Downward Sloping Trend Line" resistance near 17500 / 5325 formed by joining the highs of 21109 / 6339 (November 5, 2010 ) - 18524 / 5630 (February 24, 2012 ).
The '20-day EMA' and '200-day SMA' are placed at 17110 / 5190 and 16879 / 5100 levels, respectively.
The positive crossover in daily 'RSI - Smoothened' oscillator and '5 & 20 EMA' is still intact.
DERIVATIVES:
Liquidity remains strong despite all odds; hold on long positions: Nifty spot closed at 5215.70 this week, against a close of 5099.65 last week. The Put-Call Ratio increased from 1.02 to 1.11 levels and the annualized Cost of Carry is positive 6.57%. The Open Interest of Nifty Futures increased by 6.84%.
Put-Call Ratio Analysis Implied Volatility Analysis: PCR-OI has increased from 1.02 to 1.11 levels. The increase in ratio was due to good amount of buildup seen in 5000-5200 put option and simultaneously same strike price call option has seen some unwinding in the week gone by. In call option 5500 call option has seen significant amount of buildup which has highest open interest in this series and 4800 put option has also seen considerable amount of buildup, however the highest buildup in put option is in 5000 strike price.
Open Interest Analysis: Total open interest of market has increased from `1,02,787/- crores to `1,22,320/- crores. Stock futures open interest has increased from `27,253/- crores to `28,810/- crores. Some of the big names which added open interest are HINDPETRO, BHARTIARTL, BANKBARODA, HEROMOTOCO and BPCL. Open interest was shed in large cap names like INFY, ITC, KOTAKBANK, BHEL and TATASTEEL.
Implied Volatility Analysis: Implied Volatility (IV) for NIFTY has increased from 16.03% to 14.63%. Historical volatility (HV) is at 18.81% and that for BANKNIFTY is trading at 24.48%. Liquid counters having very high HV are ONMOBOLE, SKUMARSYNF, BAJAJHIND, PANTALOONR and SUZLON. Stocks where HV are on lower side are HDFC, ULTRACEMCO, VIDEOIND, M&M and NHPC.
Cost-of-Carry Analysis: Nifty futures closed at a premium of 25.35 point against the premium of 23.90 points to its spot. Next month future is trading with premium of 51.00 points. Liquid counters where CoC is high are VIDEOIND, TATACOFFEE, JSWISPAT, SKUMARSYNF and ALOKTEXT. Stocks with negative CoC are KTKBANK, HEROMOTOCO, HINDPETRO, SUZLON and CHAMBALFERT.
IIP DATA:
Domestically, the industrial production data on Thursday will be key, though it won't be a major market mover unless the number is a big negative or positive surprise given its volatile nature.
Q1 EARNING:
Investors' focus remains on Q1 June 2012 earnings. DLF and Steel Authority of India will unveil Q1 results on Monday, 6 August 2012 . Mahindra & Mahindra and Bharti Airtel will unveil Q1 results on Wednesday, 8 August 2012 . Tata Motors and Ranbaxy Laboratories unveil quarterly results on Thursday, 9 August 2012 . State Bank of India Friday, 10 August 2012 .
REFORMS:
After the Reserve Bank of India (RBI) kept repo rate unchanged last month, the spotlight will shift to the newly appointed Finance Minister, P Chidambaram, who is anticipated to announce few reforms and policy changes against a backdrop of slowing growth and a weak monsoon.
Marketmen are widely expecting that the government will announce few reforms after the election of new vice president next week. Election to the post of vice president will be held on 7 August 2012 and the results would be out on the same day.
MONSOON:
Investors will closely watch how the monsoon progresses. The monsoon rainfall until 31 July 2012 was 19% below the long-term average, with some areas getting little or no rain and some others seeing excessive rain and flooding. Minister of State for Agriculture Harish Rawat last month said that rainfall in August, a critical month for summer crops, is likely to be 84%-85% of the long-term average, below the previous forecast of 96%.
FUNDAMENTALS:
This Week’s Market Round Up: Markets upbeat post this week’s April-June quarter results: Sensex closes at 17,197.93 up 2.13%; Nifty closes at 5,215.70, up 2.27% The RBI in its month end Monetary Policy kept policy rates steady, but slashed SLR by 1% to 23% freeing up liquidity of about INR 62,000 crore which could be diverted toward the private sector. The share of Symphony was locked at an upper circuit of 20% at INR 310.30 on reporting 67.55% Y-o-Y jump in net profit at INR 19.67 crore for the quarter ended June 2012, as raw material expenses declined by 23% Y-o-Y for the quarter .Operating margins improved as well. On the downside ,sales off-take for Automobiles for the month of July has continued to remain tepid with only the Utility Vehicle and Light Commercials Vehicle segment posting a positive growth. International Markets witnessed the Federal Reserve and ECB alike deferring their highly anticipated asset purchase programmes.
Market Outlook: Events ahead: At the current level of 16,800, the Sensex trades at a PE of 15.63x FY12 earnings and 13.48x FY13E earnings estimate. At 13.48x, we trade below average valuations of 15.4x 1 year forward earnings. Despite several expectations, the government is yet to move on any kind of reform / policy action, thus resulting in disappointments.
In addition to macro woes, the India Meteorological Department (IMD) has officially hinted at a drought-like situation, stating that this year’s monsoon could be deficient, at below 90% of the Long Period Average.
Sectoral Outlook: Stay with companies robust business models: RBI in its latest policy kept rates unchanged as it was concerned about rising inflation. GDP growth has weakened to 5.3% in Q4FY12, while IIP growth for the last 6 months has averaged 1.3%. We advice investors to play quality interest rate sensitives like Banks and Capital Goods (Yes Bank, City Union Bank and Larsen and Toubro). At the same time consumption and agri stories (GSK Consumer, Bajaj Auto, Coromondal Fertiliser) would continue to do well. We recommend reducing exposure on global cyclicals like Tata Steel as concerns from China
TECHNICALS:
Round-up: Eventful Week: Last week was full of events with lot of expectation that Fed may come out with some form of QE 3 and even European regulator ECB may announce bond buying program. Ahead of this events, market started the week with positive note, however it didn’t manage to sustain at higher level and given away all its gain after no policy easing announcement from Fed and ECB. Finally, Nifty ended the week with on flat note with loss of 50 bps.
Nifty Outlook: Range Bound: We mentioned in our previous report that “Nifty is trading in a downtrend and can reverse only if it breaches 5165 level” Market started the week with positive note and broke our mentioned resistance of 5165 on closing basis in 1st trading session. Market rallied after it breached our mentioned resistance and further made high of 5246. Nifty has resistance at 5257 which is lower end of the gap placed on its daily chart. Beside this, previous support of 5165 (200 DEMA) will now act as strong support for markets. Short Term Oscillator on daily chart are trading in neutral which indicates that market may be range bound in days to come. Thus going forward we believe that Nifty may trade in range of 5165-5260 and breach of either side would lead to rally in markets.
RANGE-BOUND SCANARIO:
The range bound scenario has been holding out. The street is trying to figure out, which way the range might violate. With the last two days of resilience, what we have seen is that the indicators have started to take a turn up. So, there is a good chance that if something positive happens and we get closer to levels of 5270-5300, there could be a chance of an upside breakout happening, but again this will be confirmed only by the index. For the time being, it still remains a stock specific market. The other worry, which we have been repeating for last few days is that the Bank Nifty has not bounced back strongly. It is just closing around 10,400 levels and that is the key level which we have been watching out for. If we start trading above that, the Bank Nifty will possibly give some kind of momentum to the Nifty and could make sure that the index moves on the higher end of the range, possibly even breaks out. That is the kind of scenario we are in right now. However, broadly this is a market wherein people trading with short term horizon should use intraday dips to buy into and again that will be a stock specific call.
WALL STREET – WEEK AHEAD:
Positive momentum in face of headwinds: To borrow from "Star Wars," the Force is strong with this stock market. Despite a ho-hum earnings season and central banks' disappointing hopes for aggressive economic stimulus this week, US stocks held firm. After four days of losses, the benchmark Standard & Poor's 500 index rallied on Friday, finishing the week in the positive for a fourth straight time and reaching three-month highs. Sustaining momentum are valuations that make stocks attractively priced relative to other assets. To be sure, some corporate earnings have been impressive, especially in defensive stocks such as utilities. The trigger for stocks' surge was the Labor Department report that US employers added 163,000 jobs to their payrolls in July, the most in five months. However, the unemployment rate, based on a different government survey, edged up to 8.3%.
ATTRACTIVE EQUITIES: "There's still a fair amount of pessimism, but equities are so much more attractive than bonds that the dividend on Johnson & Johnson, for example, offers a better yield than the company's bonds," said Bruce Zessar, managing director at Advisory Research in Chicago
MOMENTUM "ON OUR SIDE": "This indicates that there is near- and long-term momentum on our side, like Wall Street's version of 'May the force be with you,'" said Sam Stovall, chief investment strategist for Standard & Poor's Equity Research Services in New York
As expected, indices rallied sharply during the first half of the week. Comments from ECB chief Mario Draghi were initially considered as negative as there were no signs of immediate liquidity boost to equity markets. However the fact that the ECB stressed on Governments across Europe to take policy measures was later seen as a silver lining. Domestically, after opening with a downward gap on Friday our markets found support around Tuesday's low of 17004 / 5154 level and bounced back sharply to close above 5200 mark. Going forward, the weekly high of 17292 / 5247 would act an important resistance for the markets. At this juncture, few technical tools such as, 'RSI - Smoothened' oscillator and '5 & 20 Day EMA' are positively poised. Hence, a move beyond 17292 / 5247 level may push indices higher to test 17466 - 17631 / 5300 - 5349 levels. These levels almost coincide with the "Downward Sloping Trend Line" resistance near 17500 / 5325 formed by joining the highs of 21109 / 6339 (November 5, 2010 ) - 18524 / 5630 (February 24, 2012 . Conversely, markets have a decent support around 17004 / 5154 level. A breach of this level would augment pessimism and indices are then likely to test 16598 - 16467 / 5032 - 4991 levels. Range bound activity between 16598 / 5032 and 17631 / 5349 is likely to continue for the coming 2 weeks.
THE WEEK THAT WAS
Market gallops on bargain hunting
The market rose on bargain hunting last week after declining in past three consecutive weeks. Data showing resumption of buying of Indian stocks by foreign funds underpinned sentiment. Key benchmark indices rose in three out of five trading sessions.
The BSE Sensex rose 358.74 points or 2.13% to 17,197.93. The 50-unit S&P CNX Nifty rose 115.85 points or 2.27% to settle at 5,215.70.
The BSE Mid-Cap index rose 3.14% and the BSE Small Cap index rose 2.96%. Both these indices outperformed the Sensex.
The Sensex has jumped 1743.01 points or 11.27% in calendar 2012 so far (till 3 August 2012 ). From a 52-week low of 15,135.86 on 20 December 2011 , the Sensex has risen 2,062.07 points or 13.62%. From a 52-week high of 18,523.78 on 22 February 2012 , the Sensex has lost 1,325.85 points or 7.15%.
Foreign institutional investors (FIIs) bought shares worth Rs 140.13 crore on 2 August 2012 , as per provisional figures on the stock exchanges. FIIs bought shares worth Rs 438.50 crore from the secondary equity markets on 1 August 2012 , as per data from Securities & Exchange Board of India. FIIs made substantial purchases of Indian stocks last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
The India Meteorological Department (IMD) on Thursday, 2 August 2012 , said the El Nino weather pattern is likely to reduce rains again in the second half of the June to September monsoon season. The IMD said rains over the entire June to September season are now expected to be less than 90% of long-term average. This is lower than IMD's previous forecast of 96%. Monsoon rains are considered deficient -- a drought in layman's terms -- if they fall below 90% of a 50-year average. Between June 1 and August 1, rainfall was about 19% below normal. The IMD expects normal rains in August -- a critical month for summer crops. It expects rainfall to be 5-6% below average in September due to the possibility of El Nino. The weather office said rainfall during August-September is expected to be 91% of the long-term average.
The HSBC India Composite Output Index fell to 54.4 in July from 55.7 in June. July's expansion is the slowest in three months, HSBC said.
MONDAY: Trading for the week started on a positive note. Key benchmark indices edged higher on Monday, 30 July 2012, with firm global stocks and data showing resumption of buying of Indian stocks by foreign institutional investors (FIIs) boosting sentiment. The BSE Sensex jumped 304.49 points or 1.81% to settle at 17,143.68. The S&P CNX Nifty jumped 99.95 points or 1.96% to settle at 5,199.80.
TUESDAY: Key benchmark indices edged higher on Tuesday, 31 July 2012 , with the market sentiment boosted by data showing resumption of buying of Indian stocks by foreign funds. The BSE Sensex rose 92.50 points or 0.54% to 17,236.18. The S&P CNX Nifty rose 29.20 points or 0.56% to 5,229.
WEDNESDAY: Key benchmark indices eked out small gains on Wednesday, 1 August 2012 , after witnessing intraday volatility. The BSE Sensex rose 21.20 points or 0.12% to settle at 17,257.38. The S&P CNX Nifty rose 11.50 points or 0.22% to settle at 5,240.50.
THURSDAY: Key benchmark indices snapped four day winning streak on Thursday, 2 August 2012 , as investors nervously awaited the latest policy decision from the European Central Bank. The BSE Sensex fell 33.02 points or 0.19% to settle at 17,224.36. The S&P CNX Nifty fell 12.75 points or 0.24% to settle at 5,227.75.
FRIDAY: Key benchmark indices fell for the second straight day on Friday, 3 August 2012 , as a downward revision in 2012 monsoon forecast from the state-run India Meteorological Department (IMD) on Thursday, 2 August 2012 , hurt investor sentiment adversely. The BSE Sensex was down 26.43 points or 0.15% to 17,197.93. The S&P CNX Nifty was down 12.85 points or 0.23% to 5,215.70.
Among the 30 Sensex shares, 24 rose and the rest declined.
TOP STORIES:
P Chidambaram: Architect of ‘Dream Budget’ is back
RBI maintains status quo on key rates…Cuts SLR to 23%
CII's comments on recurrence of Grid failure across India
PM resolves major land transfer bottleneck
Employee productivity levels sink to new lows due to stagnant job market: PwC
Recruiter sentiment is lower in second half of 2012: Naukri.com
DOMESTIC NEWS:
Reliance Retail enters into partnership with TJ’s Food Products
Public Debt Management Report - April-June 2012
Mahindra Satyam settles claims with Aberdeen
Internet grows to more than 233 million Domain: VeriSign, Inc.
RIL puts on hold its investments in exploration: reports
PM sets up committee to review taxation of development centres and IT sector
Bharti Airtel plans equity issue: reports
Maruti Suzuki to focus on employee rehabilitation
Shree Raj Travels founder commits suicide
IT Cos may hire less during placement season: reports
Coal Minister addresses foreign investors meet at Singapore
GLOBAL NEWS:
Spread betting tips: Will US
Apple- Twitter talks end...No deal
No plans to invest in India
Statement by ECB President Mario Draghi
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