With the April series in F&O having ended at a high that would have been difficult to predict even for the most optimist at the beginning of the series, we have had two trading days since then, both bringing in interesting possibilities. Nifty fell a whopping 95 points on the very next day after expiry, having hit a high of 4218 the day before, within striking distance of its alltime high of 4245 reached in Feb 07. With the spectre of another feburary-like scenario enfolding ( Nifty had fallen 101 points on the day after the expiry of Feb series), nervousness could be felt as we went into trade on monday morning. Even though the global markets werent gungho on friday, they werent weak enough for us to attribute the fall we saw on friday to global factors. As expected, markets opened weak on monday and traded sideways to down for the first half of the day. Then, when it looked as if the indices would breach the support levels of 4040-4030 (given the fact that global cues were flat to weak and we had two trading holidays coming up), the markets reversed and recovered the entire intraday losses to close in the green for Nifty and a loss of mere 36 odd points for the Sensex. Just as the 95 point fall was unexpected on friday, so was the 60 points intraday recovery from the lows of the day on monday.
So, what can we expect now in a truncated trading week when we open on thursday ? Was the selling we saw on friday a trap for the bears ? Or was the reversal seen on monday from the lows a trap for the bulls ? Both seem possible as of now ... what would be important is how we close this week. Previous week had a close of 4083.50 and a weekly close above that for this week could negate the possible doji formation on the weekly charts for the previous week. Closing below previous week's low of 4058 would give credence to the weakness on the charts. On the other hand, if we manage to break 4120 on the nifty intraday, we could see short-covering which could then propel us to 4145 where we can expect resistance. Sustaining above 4145 would be an indication of an upmove and a retest of previous high would be in order.
Its interesting to note, however, that the FIIs havent really been buying in NF in the last week, except on 24th April when they had a net buy of 400 cr in NF. However, the OI data as on 24th gives an idea that most of the buying was short-covering/closure of long positions and not fresh longs. Also, another interesting piece of data that comes to light is on 26th April, the day of the expiry. FII OI in NF till the day before was 866,839 contracts whereas at the end of expiry, they had a OI for NF at 623,300 contracts. Thats a whopping difference of 2.43 lac contracts ! The gross buy/sell data for that day in NF for FIIs cant justify this decrease. So, how did it go down so much ? They simply let the April contracts expire, I would say. That would logically indicate that those were short positions which, if covered, would have taken the NF even higher than it was on the expiry day, so better to let them expire. The next day when we fell 95 points on the Nifty, FIIs sold 517 cr in NF alone and their OI went up as well, indicating creation of fresh short positions. On monday, FIIs sold 808 cr in NF alone, though the OI only went up marginally, indicating most of it was closure of existing longs.
So, watch the action closely on thursday as that should give us a clue as to where we are headed in the coming week or two. Enjoy !
29 April, 2007
27 April, 2007
The new Indian Cricket team !
The big guys are back ! ... back to their old antics, I mean ;) The very next day after Reliance declares its hefty results and the day Bharti comes out with its better than expected results, the big boys show who the boss is, hitting a century on the nifty without batting (pun intended !) an eyelid. BCCI should get them in our cricket team, I would say ! They took most of the index heavyweights to the cleaners, be it Reliance, Bharti, ONGC, Tisco ... and to think that just yesterday, everyone was talking about how we could hit a new alltime high !
So, are we done and dusted for now ? Was the sharp rally we saw this month a flash in the pan ? To answer that, we first need to understand what caused the selling today. My view is that firstly, the undue euphoria of the credit policy is slowly sinking in. Second, we are at the fag end of the results season, and there isnt going to be any major trigger in the very recent future. Third, scrips like Reliance and Bharti had seen a substantial rally pre-results and thus witnessed profit booking. Finally, the bears that had been squeezed all throughout the last week or two showed resolve and came at the bulls right from the opening bell with a renewed vigour. Remember, allowing bulls to take out the previous top would mean we potentially open fresh upsides, which is something bears cant allow. On the other hand, failing to break the previous high can potentially result in a double top which could mean retrace of a large part of the gains we saw in this month.
For now, I would watch 4040, which I expect to hold and as long as its not breached with conviction, the trend remains up and we would attempt a break of the previous highs once again. Below 4040, 3940-3905 range is what would provide support for Nifty and as long as that holds, the strength of the rally from the recent lows wouldnt be in question. the downmove would still qualify as a correction of the recent rise we have seen.
So, are we done and dusted for now ? Was the sharp rally we saw this month a flash in the pan ? To answer that, we first need to understand what caused the selling today. My view is that firstly, the undue euphoria of the credit policy is slowly sinking in. Second, we are at the fag end of the results season, and there isnt going to be any major trigger in the very recent future. Third, scrips like Reliance and Bharti had seen a substantial rally pre-results and thus witnessed profit booking. Finally, the bears that had been squeezed all throughout the last week or two showed resolve and came at the bulls right from the opening bell with a renewed vigour. Remember, allowing bulls to take out the previous top would mean we potentially open fresh upsides, which is something bears cant allow. On the other hand, failing to break the previous high can potentially result in a double top which could mean retrace of a large part of the gains we saw in this month.
For now, I would watch 4040, which I expect to hold and as long as its not breached with conviction, the trend remains up and we would attempt a break of the previous highs once again. Below 4040, 3940-3905 range is what would provide support for Nifty and as long as that holds, the strength of the rally from the recent lows wouldnt be in question. the downmove would still qualify as a correction of the recent rise we have seen.
26 April, 2007
CS Software
Given the overall weak sentiment for IT/software sector, its fraught with danger to give a buy in this space. However... ;) ... buy this scrip with EOD stops of 56.50 for a target of 71.
Updates
Bilcare hit 775 intraday but failed to close above 760 ... looking good to the next leg of the upmove;
CMC hit a low of 1121, closing at 1131 eventually. Below 1110, 1075-1050-1030 ... eventually 905 ;)
ONGC, as suggested, has been flexing its muscles and should continue to run for now. 978 achieved intraday today, with more to go.
CMC hit a low of 1121, closing at 1131 eventually. Below 1110, 1075-1050-1030 ... eventually 905 ;)
ONGC, as suggested, has been flexing its muscles and should continue to run for now. 978 achieved intraday today, with more to go.
Ship Ahoy !
So, did SCI zoom or what ? ;) 204 achieved in style ! Now lets change horses ... err ... ships .. how about GE shipping on break of 247 ?
25 April, 2007
Credit Policy -- much ado about nothing ?
So, the markets went into a tizzy after RBI Guv spoke. The Credit policy, as percieved by the stock markets, is supposed to be saying that there arent going to be any more rate hikes, GDP growth will sustain at 8.5-9% and inflation is under control. Banking scrips were on fire, logging in gains of 5-10% once the credit policy was announced. Hmmm ...
Lets take a closer look at what the Credit policy says .... but first, let me say that there was never a doubt that RBI wont hike rates on 24th April, for the simple reason that the earlier CRR hike was in two tranches, last of which is to come into effect from 28th April. So, with an impending hike yet to take effect in reality, do we really think the RBI would be stupid enough to go for another hike without seeing the effects of the already announced measures and have egg on its face ?? duh !
Okay ... back to what Credit policy says ...
GDP growth estimate lowered from 9-9.5% as the FM projected just couple of months back, to 8.5%;
Average price of crude basket for India at USD 64 as on 20th April 2007;
Money supply increased to 20.8% in 2006-2007;
No interest to be paid by RBI on CRR balances;
Forex reserves at USD 200 billion as at end March, 2007;
Prices of manufactured products account for well above 50% headline inflation;
Inflation to be contained close to 5% for 2007-2008;
Money supply to be contained at 17-17.5%
Now, lets put all these pieces together and try to create a complete picture. One, growth expectations lowered ... why ? is the demand slackening or are there supply constraints ? Neither ... GDP growth lowered as inflation control measures will effect growth as explained in an earlier post after the CRR hike. Two, crude prices still high around 64 USD a barrel and with rupee getting stronger by the day, crude will take the import bill down in rupee terms. But, the rupee would remain strong as long as the inflows are higher than demand for dollar, which is very much possible given the higher interest rates prevailing in India, which would in turn mean expanded liquidity, thereby reducing the effectiveness of current measures of RBI to contain inflation by tightening liquidity. End result ? more tightening with rate hikes ... its a vicious circle. Three, money supply, which is at 20.8%, to be brought down to 17-17.5%, which is a 15% reduction at the higher band. And how will that come into effect ? RBI will suck in more liquidity from the economy with further tightening. Four, at the current inflation rate of over 6%, RBI needs to see it fall over 15% to bring it down to 5% level it expects to maintain for current year. Also, RBI's comfort zone of inflation for next year is in the range of 4-4.5%. With price of manufactured goods accounting for over 50% of headline inflation as reported by RBI, what does the Guv need to do to bring down inflation levels within their target zone ? Finally, the punchline from RBI itself .... "to respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations and the growth momentum."
One doesnt need to be a rocket scientist to decipher what the RBI is saying, never mind what the markets 'read' into it. Interestingly, the public sector banks were the ones that went through the roof on tuesday ... while private sector banks were a bit sedate in comparision. So, where do we go from here ? I would estimate that if we dont see inflation come down in the next 2-3 of weeks to below 5.75%, we would see RBI flexing its muscles again with another rate hike, most likely around mid May 2007. The RBI hasnt changed its stance a wee bit, its still as hawkish as before. Only, it decided to sweet-talk its way this time and the reasons behind that could be much more complicated than what meets the eye.
Lets take a closer look at what the Credit policy says .... but first, let me say that there was never a doubt that RBI wont hike rates on 24th April, for the simple reason that the earlier CRR hike was in two tranches, last of which is to come into effect from 28th April. So, with an impending hike yet to take effect in reality, do we really think the RBI would be stupid enough to go for another hike without seeing the effects of the already announced measures and have egg on its face ?? duh !
Okay ... back to what Credit policy says ...
GDP growth estimate lowered from 9-9.5% as the FM projected just couple of months back, to 8.5%;
Average price of crude basket for India at USD 64 as on 20th April 2007;
Money supply increased to 20.8% in 2006-2007;
No interest to be paid by RBI on CRR balances;
Forex reserves at USD 200 billion as at end March, 2007;
Prices of manufactured products account for well above 50% headline inflation;
Inflation to be contained close to 5% for 2007-2008;
Money supply to be contained at 17-17.5%
Now, lets put all these pieces together and try to create a complete picture. One, growth expectations lowered ... why ? is the demand slackening or are there supply constraints ? Neither ... GDP growth lowered as inflation control measures will effect growth as explained in an earlier post after the CRR hike. Two, crude prices still high around 64 USD a barrel and with rupee getting stronger by the day, crude will take the import bill down in rupee terms. But, the rupee would remain strong as long as the inflows are higher than demand for dollar, which is very much possible given the higher interest rates prevailing in India, which would in turn mean expanded liquidity, thereby reducing the effectiveness of current measures of RBI to contain inflation by tightening liquidity. End result ? more tightening with rate hikes ... its a vicious circle. Three, money supply, which is at 20.8%, to be brought down to 17-17.5%, which is a 15% reduction at the higher band. And how will that come into effect ? RBI will suck in more liquidity from the economy with further tightening. Four, at the current inflation rate of over 6%, RBI needs to see it fall over 15% to bring it down to 5% level it expects to maintain for current year. Also, RBI's comfort zone of inflation for next year is in the range of 4-4.5%. With price of manufactured goods accounting for over 50% of headline inflation as reported by RBI, what does the Guv need to do to bring down inflation levels within their target zone ? Finally, the punchline from RBI itself .... "to respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations and the growth momentum."
One doesnt need to be a rocket scientist to decipher what the RBI is saying, never mind what the markets 'read' into it. Interestingly, the public sector banks were the ones that went through the roof on tuesday ... while private sector banks were a bit sedate in comparision. So, where do we go from here ? I would estimate that if we dont see inflation come down in the next 2-3 of weeks to below 5.75%, we would see RBI flexing its muscles again with another rate hike, most likely around mid May 2007. The RBI hasnt changed its stance a wee bit, its still as hawkish as before. Only, it decided to sweet-talk its way this time and the reasons behind that could be much more complicated than what meets the eye.
24 April, 2007
Century Enka
This one is weak ... can fall to 113. Sell with stops 141 EOD for the target mentioned.
BILCARE
Up from 713 to 743 at today's close ( 755 intraday high), Bilcare needs to cross 760 for the next part of the upmove. Enjoy !
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