Market Outlook 3rd Nov 2009

INTRADAY calls for 3rd Nov 2009

Short ALBK-119 for 114-111+ with sl 122

Buy Ashokley-45 around 43 for 47-49+ with sl 41

 

RESISTANCE
4745
4811
4874
4938
5002
SUPPORT
4698
4680
4616
4552

Strong & Weak  futures  
This is list of 10 strong futures:

Crompton Greaves, Balrampur Chini, McDowell-N, Ashok Leyl, Dr Reddy, Yes Bank, PTC, Asian Paints, OFSS & Hind Zinc. 

And this is list of 10 Weak futures:

IOC, EKC, RCom, GMR Infra, RNRL, Suzlon, Punj Lloyd, Nagar Fert, MLL & Bank Of India.
 Nifty is in Down trend  

 

NIFTY FUTURES (F & O):  
Above 4745 level,  expect short covering up to 4809-4811 zone and thereafter expect a jump up to 4872-4874 zone by non-stop.

Support at 4698 level. Below this level, selling may continue up to 4680-4682 zone by non-stop.

Below 4616-4618 zone, expect panic up to 4552-4554 zone by non-stop.

On Positive Side, cross above 4936-4938 zone can take it up to 5000-5002 zone by non-stop. Supply expected at around this zone and have caution.
 
Short-Term Investors:  
1 Week: Bearish with a SL of 4918.10. Target at 4671.20.
1 Month: Bearish with a SL of 6289.00. Target at 4620.00.

3 Months: Bearish with a SL of 5080.00. Target at 2951.00.

1 Year: Bullish with a SL of 2575.00. Target at 6201.65.
 
BSE SENSEX: 
 Sell with a SL of 16182.09. Target at 15742.13.
 
Short-Term Investors: 
 1 Week: Bearish with a SL of 16606.95. Target at 15720.73.
1 Month: Bearish with a SL of 18381.96. Target at 14937.03.

3 Months: Bearish with a SL of 17361.47. Target at 12425.52.

1 Year: Bullish with a SL of 15197.60. Target at 18289.88.
 

 POSITIONAL BUY:
Buy TECHTRAN POLYLEN (BSE Cash & BSE Code:523455) 
Buy with a Stop Loss of 23.30. Above 25.00, it will zoom.
 

Today: May hold on gains.

1 Week: Bearish, surprisingly going up.

1 Month: Bullish, as per current market conditions.

3 Months: Bearish, surprisingly going up.

1 Year: Bullish, as per current market conditions.
 
Buy VINYL CHEM (BSE Cash & BSE Code: 524129) 
Buy with a Stop Loss of 5.40. Above 6.93, it will zoom.
 

Today: May hold on gains.

1 Week: Bearish, surprisingly going up.

1 Month: Sideways,  surprisingly going up.

3 Months: Bearish, surprisingly going up.

1 Year: Bullish, as per current market conditions.
 

 

FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	30-Oct-2009	3966.63	3390.58	576.05

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	30-Oct-2009	2400	1807.07	592.93

 

 

SPOT LEVELS

	4711.70	( -0.82 %)	-38.85
		1	2	3
Resistance		4814.40	4917.10	4980.55
Support		4648.25	4584.80	4482.10

 

	15896.28		( -0.97 %)	-156.44
			1	2	3
Resistance			16236.37	16576.47	16792.05
Support			15680.69	15465.11	15125.01

Interesting findings on web:
U.S. stocks rose, with the Standard & Poor's 500 Index rebounding from its biggest weekly drop since May, as Ford Motor Co.'s profit and gauges of manufacturing, home sales and construction spending topped projections.

On Monday, the Dow rose 76.71, or 0.8 percent, to 9,789.44, its fourth gain in 10 days. The broader Standard & Poor's 500 index rose 6.69, or 0.7 percent, to 1,042.88, and the Nasdaq composite index rose 4.09, or 0.2 percent, to 2,049.20.

RUSSELL562.4-0.37-0.07%

TRAN3599.84-13.50-0.37%

UTIL362.66-0.38-0.1%

S&P 100485.152.84+0.59%

S&P 400662.163.01+0.46%

NYSE6784.9445.49+0.67%

NAS 1001672.915.78

After the close, Stanley Works (SWK) said it would buy Black & Decker (BDK, Fortune 500) in a $4.5 billion all-stock deal.

Stocks rallied in the morning after a key manufacturing index spiked to its highest level in three and a-half years in October. An upbeat reading on pending home sales and Ford Motor's big profit report also added to the morning bounce, giving investors a reason to jump back into stocks after last week's selloff.

But the morning rally turned sour in the afternoon as weakness in financial, tech and transportation shares spearheaded a broader retreat. By the last hour, short-term investors used the selling as an opportunity to jump back in and scoop up a variety of shares.

Analyst Kenny Landgraf of Kenjol Capital Management said further volatility in the coming weeks would not be a surprise, but that stocks should manage to move higher through year end. He expects the Dow will end the year around the 10,500 mark.

A trio of economic reports released in the morning helped reassure investors that the recovery is on track.

A survey by the Institute for Supply Management showed nationwide manufacturing activity jumped to 55.7 in October, from 53 the previous month. Economists surveyed by Briefing.com had predicted a more modest gain to 54. Numbers above 50 signal growth, while figures below 50 suggest contraction.

The Commerce Department said construction spending rose unexpectedly by 0.8%. Economists surveyed by Briefing.com were anticipating a 0.5% decline.

Meanwhile, the National Association of Realtors reported that the number of signed sales contracts to buy homes rose in September for the eighth straight month. Pending home sales rose much more than expected, by 6.1%, in September. Analysts were looking for a 1.2% increase.

"What we're seeing is a general improvement in the economy as reflected in that ISM number," said Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, New Jersey, which manages about $98 billion in client assets. "Beyond that we saw some fairly decent numbers out of new home construction as well, so that's also a positive. So long as the data continues to come in positive like we saw today, the market will take comfort in that."

Of 334 companies in the S&P 500 that reported quarterly earnings since Oct. 7, 84 percent topped estimates, according to data compiled by Bloomberg. Sales have exceeded predictions by 58 percent.

Wall Street analysts are forecasting S&P 500 earnings will increase 25 percent in 2010, the fastest growth in two decades. Investors are paying the lowest so-called price-to-earnings growth ratios since 1995, according to Bloomberg data.

Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts' projection for 2010 earnings growth, according to data compiled by Bloomberg. That's the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961.

Financial shares helped drag down the indexes after an official from the Federal Reserve, which begins a two-day policy meeting tomorrow, said Monday that big banks may suffer big losses on commercial mortgages and that some of them don't have the capital to withstand those losses. Concerns about commercial real estate investments have been brewing for months since residential mortgages crippled the financial system last year. The SPDR KBW Bank ETF ( KBE - news - people ) gained 1.1% for the day after giving up morning gains.

Ford, the only major U.S. automaker to avoid bankruptcy, rallied 8.3 percent to $7.58. The company reported third-quarter profit, excluding extraordinary items, of 26 cents a share, beating the 20-cent loss estimated by analysts in a Bloomberg survey.

Ford rallied 8.3 percent, the most since July, following its first operating profit since early 2008. American Express Co., United Technologies Corp. and General Electric Co. climbed at least 1.5 percent. Benchmark indexes pared gains after Jon Greenlee, associate director of the Federal Reserve division that regulates banks, said banks still face threats from defaults on commercial-real estate.

This came a day before automakers report their October sales. Analysts say sales likely rose last month but caution that they are still at 1980s levels.

Varian Medical Systems Inc. added 5.4 percent to $43.18. The maker of radiation equipment used to treat cancer was raised to "buy" from "hold" at Soleil Securities.

BB&T Corp. rose 4.8 percent to $25.06 after it was raised to "hold" from "sell" at Sandler O'Neill. SunTrust Banks Inc. gained 4 percent to $19.88 after the analysts raised it to "buy" from "hold."

CIT Group Inc. plunged 65 percent to 25 cents. The company filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout.

Eight of 10 industry groups in the S&P 500 advanced today, led by gains of more than 1 percent in consumer-staples companies and raw-materials producers.

"This is the post-Halloween pick-up," said Burt White, chief investment officer at LPL Financial in Boston, which oversees $234 billion. "Ford's earnings today were very, very good. I think that a lot of folks were concerned about the CIT bankruptcy, but the market is kind of shaking it off pretty resoundingly."

Motorola Inc. added 5.4 percent to $9.03. The biggest U.S. mobile-phone maker was raised to "buy" from "hold" by analysts at Citigroup Inc., who said the company will introduce a "compelling" offer of handsets at a "time when many investors have given up."

The analysts reduced their recommendations on Palm Inc. and Research In Motion Ltd. to "sell," from "hold" and "buy" respectively. Research in Motion Ltd. lost 5.1 percent to $55.74. Palm slid 6 percent to $10.91. The recommendation changes came in a report to investors dated Nov. 1.

American Express gained 2.4 percent to $35.68. The biggest U.S. credit-card company by purchases can issue another $12.1 billion in asset-backed securities under a U.S. government emergency-lending program, according to an Oct. 30 filing.

JPMorgan up by [JPM  42.58    0.81  (+1.94%)   ].

General Electric rose 1.5 percent to $14.47.

United Technologies Corp. added 2 percent to $62.66. A subsidiary of the maker of Otis elevators and Carrier air conditioners signed a two-year F-16 spare parts supply contract with SABCA, a Brussels-based aerospace engineering and manufacturing company. 

Financial shares in the S&P 500, which have fallen 10 percent since Oct. 14, tumbled as much as 1.8 percent before paring losses.

Citigroup Inc., the bank that is 34 percent owned by the U.S. government, lost 2.4 percent to $3.99.

Traders said it was one-two punch for financials that caused that midday bobble: It was in part Citi's drop below $4 but also testimony from Jon Greenlee, director of the Fed's Division of Banking Supervision and Regulation, to a House panel, warning about banks' potential losses from commercial real-estate loans.

"Although conditions and sentiment in financial markets have improved in recent months, significant stress and weaknesses persist," said Greenlee, who works at Fed's Division of Banking Supervision and Regulation in Washington, in testimony to a House Oversight subcommittee hearing in Atlanta. "The condition of the banking system is far from robust."

Denbury Resources Inc. tumbled 10 percent to $13.09, the biggest drop in the S&P 500. The oil and natural-gas producer said it will buy Encore Acquisition Co. for about $4.5 billion to add fields in the Rocky Mountains and Gulf of Mexico.

Dean Foods Co. lost 8.5 percent to $16.69. The biggest U.S. dairy processor said fourth-quarter earnings may fall more than analysts estimate amid rising prices for raw milk.

Telecoms Verizon and AT&T [T  25.58    -0.09  (-0.35%)   ] were among the drags on the Dow as investors took profits after the sector's recent gains.

Intel [INTC  19.00    -0.11  (-0.58%)   ] also dragged on the Dow as techs were weak after a report showed chip sales rose in the third quarter but revenue remains below year-ago levels.

A couple days before retailers report on their October sales, Wal-Mart [WMT  50.28    0.60  (+1.21%)   ] once again slashed its toy prices. Wal-Mart shares rose 1.2 percent.

Retailers are expected to report an uptick in sales but analysts remain wary about the outlook for the holiday season.

Retailers started the day mostly lower but recovered and finished the day mostly higher. Department stores Sears [SHLD  67.13    -0.73  (-1.08%)   ] and Bon-Ton [BONT  9.20    -0.05  (-0.54%)   ] skidded, while Gap [GPS  21.79    0.45  (+2.11%)   ] and Bed, Bath & Beyond [BBBY  36.39    1.18  (+3.35%)   ] were among the sector's notable gainers.

In the morning's other earnings news, Clorox [CLX  59.45    0.22  (+0.37%)   ] reported its profit jumped 23 percent as consumers stocked up on disinfectant products amid swine-flu fears. Its shares rose 0.3 percent.

Human Genome Sciences [HGSI  24.41    5.72  (+30.6%)   ] shares soared 35 percent after the company said its experimental lupus drug was successful in a second clinical trial. It would be the first new lupus treatment in 50 years.

Also in the sector, Vertex Pharma [VRTX  36.15    2.59  (+7.72%)   ] shares leaped 7.7 percent after the company said a phase II study showed that twice-daily treatments of its experimental hepatitis C drug telaprevir worked as well as three times a day. 

Elsewhere, Royal Caribbean [RCL  20.64    0.41  (+2.03%)   ] shares gained after an upgrade from Wells Fargo, and Progressive [PGR  16.23    0.23  (+1.44%)   ] shares jumped after Barron's said the insurer was set to expand earnings and revenue for the first time in years.

In M&A news this morning, Denbury Resources [DNR  13.08    -1.52  (-10.41%)   ] has agreed to buy Encore Acquisition [EAC  44.57    7.50  (+20.23%)   ] for $3.2 billion in cash and stock, creating one of North America's largest oil production and exploration companies. The deal represents a 35 percent premium for Encore shareholders.

Denbury shares fell 10 percent, while Encore shot up 21 percent.

Another gainer was Loews Corp. ( LTR - news - people ), the New York conglomerate controlled by the Tisch family, which reported earnings of $1.08 a share, well ahead of estimates and a reversal from last year's quarterly loss. Revenues increased 26% from 2008. Loews stock gained 2.4%.

The Chicago Board Options Exchange's Volatility Index, known as Wall Street's fear gauge, crept up to 31.84 Monday — a fresh four-month high — before ending at 29.78.

"It's a flip of a coin right now," said Jeffrey Frankel, president of Stuart Frankel & Co. "You never know what you're going to get the next day when you come in to work."

Oil, Gold & Currencies:

U.S. light crude oil for December delivery gained $1.13 to settle at $78.13 a barrel on the New York Mercantile Exchange after tumbling in the previous session.

COMEX gold for December delivery rose $19.10 to settle at $1,059.50 an ounce.

The dollar gained versus the yen and the euro.

The yen and the dollar declined for a second day against the euro as Asian stocks advanced amid renewed optimism the global economy is recovering, encouraging investors to buy higher-yielding assets.

The yen weakened versus all of its 16 major counterparts before a U.S. report that economists said will show factory orders rebounded in September, damping demand for the relative safety of Japan's currency. The dollar fell on speculation the Federal Reserve will this week keep interest rates near zero and refrain from signaling a withdrawal of stimulus measures. Australia's dollar rose for a second day before a central bank meeting today where policy makers may raise borrowing costs.

"Risk-taking appetite is returning, given that equities are rising and economies are improving," said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. "The yen is being sold."

The yen dropped to 133.74 per euro as of 11:04 a.m. in Tokyo from 133.32 in New York yesterday, when it declined 0.5 percent. The dollar fell to $1.4801 per euro from $1.4775. Japan's currency weakened to 90.36 versus the dollar from 90.21.

Foreign-exchange movements may be more volatile than usual in Asia today amid ample liquidity even as Japan has a national holiday, Yoshida said.

The MSCI Asia-Pacific Index of regional shares rose 0.2 percent and futures on the Standard & Poor's 500 Index climbed 0.3 percent. The Standard & Poor's 500 Index advanced 0.7 percent yesterday.

Fed Statement

The dollar weakened versus 13 of the 16 major currencies before the Fed releases its monetary policy statement tomorrow at the conclusion of its policy meeting. The central bank has retained a commitment to keep interest rates near zero for an "extended period."

The U.S. banking system is still "far from robust," hurt by a decline in commercial real-estate values and threatened by rising prospects for defaults on such loans, Jon Greenlee, associate director of the Fed's Division of Banking Supervision and Regulation in Washington, said yesterday in testimony to a House Oversight subcommittee hearing in Atlanta.

"The Fed is unlikely to revise the 'extended period' language, given the fragile economic recovery," said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's biggest bank. "The dollar is a favored funding currency globally, so its weakening trend is likely to persist."

U.S. factory orders climbed 0.8 percent in September after a 0.8 percent decline in August, according to a Bloomberg News survey of economists before the Commerce Department releases the report in Washington today.

Australian Dollar

The Australian dollar strengthened for a second day before the central bank sets interest rates today. Reserve Bank of Australia Governor Glenn Stevens will increase the overnight cash rate target to 3.5 percent from 3.25 percent at 2:30 p.m. in Sydney, according to 18 of 22 economists surveyed by Bloomberg News.

"The Australian dollar has benefited from improved sentiment with a host of U.S. economic data beating expectations last night," said Amanda Tan, an economist at St. George Bank Ltd. in Sydney. "A 25 basis point rate hike could potentially see a sell-off in the currency given that some in the market are looking for a more aggressive 50 basis point hike."

Australia's currency rose 0.4 percent to 90.78 U.S. cents and advanced 0.6 percent to 82.06 yen. New Zealand's dollar gained 0.7 percent to 72.28 U.S. cents and climbed 0.8 percent to 65.32 yen.

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations' higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Bonds:

Treasury prices slipped, raising the yield on the 10-year note to 3.41% from 3.38% Friday. Treasury prices and yields move in opposite directions.

What to expect:

TUESDAY: Two-day Fed meeting begins; Auto makers report October sales; Madoff accountant hearing; election day; factory orders; Earnings from UBS, MasterCard, Viacom and Kraft

WEDNESDAY: Weekly mortgage applications; ISM services index; weekly crude inventories; Chrysler business plan; Fed statement; Earnings from Comcast, Time Warner, Martha Stewart, Cisco, News Corp., Prudential and Qualcomm

THURSDAY: Retailers report October sales; BOE, ECB statements; weekly jobless claims; Earnings from Toyota, CVS, Sirius, Unilever, CBS, Nvidia and Starbucks

FRIDAY: October jobs report; Geithner speaks; Droid phone launches; wholesale trade; consumer credit; Fed's Duke speaks

Karzai named Afghan leader 

Iran Guards warn opposition against rallies

U.N. assembly draft urges action on Gaza "war crimes"

China launches "strike hard" crackdown in restive west

China Said to Plan Review of Developer Loans on Concern at Surging Prices

Australia May Raise Interest Rate to At Least 3.5% as Economy Strengthens

Stanley Works to Buy Black & Decker for $3.5 Billion as Toolmakers Combine

Ford Raising $3 Billion to Pay Down Credit Line, Achieve Investment Grade

Locke Was `Imprecise' in Comments on Second Stimulus Plan, Spokesman Says

JPMorgan Consolidates Fixed-Income Business Under Executives Pinto, Zames

Sarbanes-Oxley Exemption for Small Companies Said to Be Pushed by Emanuel

BOJ: Recovery to moderate into 2010

IMF sells 200 tonnes of gold to RBI

No more overreliance on consumer spending - Volcker

Ford to Extend Revolving Credit, Raise $3 Billion Equity

Obama to Karzai: Crack down on corruption 

Tuesday Preview: Stocks to Seesaw, Economy in Focus

Seesaw moves in the stock market have not discouraged some strategists who believe the market remains in an uptrend, despite near-term choppiness.

Stocks Monday rose early on a strong ISM report and a surprise profit from Ford, but they gave back a triple-digit gain at midday as the financial sector came under selling pressure. But buyers stepped in, taking stocks from negative levels to gains once more. The Dow finished the day at 9789, up 76, and the S&P 500 rose 6 to 1042. Financials ended higher, up 0.8 percent, even as Citigroup, which led the decline, finished lower.

Monday's intraday move though was volatile but mild compared to the sharp snap up last Thursday on Q3 GDP, and the big let down Friday when the Dow lost 249 points after a weak consumer spending report.

Monthly auto sales, factory orders and dozens of earnings reports, from such names as UBS[UBS  16.80    0.21  (+1.27%)   ], Archer-Daniels[ADM  30.48    0.36  (+1.2%)   ], Marathon Oil[MRO  31.96    -0.01  (-0.03%)   ], Viacom [VNV  22.85    -0.0934  (-0.41%)   ]and MasterCard[MA  222.47    3.45  (+1.58%)   ], could influence trading Tuesday. The Fed also starts its two-day meeting, which concludes Wednesday with its 2:15 p.m. statement.

Investment strategist Richard Bernstein said the market's choppiness is normal and it should continue.

"We have a market that was expecting improvement in the economic numbers more rapidly," he said, adding the market could continue to trade up and down with the health of the economic statistics for now.

Bernstein, CEO of Richard Bernstein Capital, said he's been bullish since early summer, and he's still bullish but he's not a "raging bull."

Traders have been speculating for days now that the Fed may take some steps this week to show it could tilt toward a higher rate environment in the next couple of months. But Bernstein believes the Fed will remain on hold and keep the language in its statement on hold as well for some time to come. The low rate environment has been one of the big drivers for stock.

"They have removed the risk of systemic bank failure but they haven't focused on restoring normal credit in the economy," he said.

Fed watchers have also said the Fed is not likely to make a move or drop the language that it will keep rates low for an "extended" time until it sees improvement in employment. This week is also the week that unemployment could potentially break the 10 percent level, when the October employment report is released Friday.

Laszlo Birinyi, who has also been bullish, said he still believes the market remains in an uptrend, but it could be choppy for now. "My view all along is the gains that we had were totally unsustainable. I wasn't necessarily looking for a decline," he said.

"I think we continue to go higher, but in a lot of a less smooth fashion than we have," he said in a brief interview.

Birinyi said the market's behavior reflects a general realization that the gains have been significant. "A lot of stocks had a lot of moves. You have the bulk of earnings behind us. There's a lot of realization that we've made some very historically stretched gains over a short period of time. It wouldn't be bad to sit out a round or two," Birinyi said.

Birinyi said the market continues to have strong underpinnings. For instance, it is resilient and has been able to stand up, even in the face of bad news. He is telling investors though that it is not a time to be aggressive.

As the stock market moved up Monday, the dollar slipped against a basket of currencies. The dollar lost ground against the euro, to a level of $1.4766 per euro, but the yen slipped against the dollar. In the Treasury market, sellers came in on the stronger economic report, pushing yields higher along the curve. The 10-year was yielding 3.424 percent, and the two-year was yielding 0.921 percent.

Econorama

MKM chief economist Michael Darda said Monday's ISM reading and the rapid rise of the ISM index during the last four months is more consistent with a V-shaped recovery than a U-shaped recovery. ISM was reported at 55.7 for October, its highest reading since April, 2006.

In a brief interview,  he said he tracked the ISM in recessions since 1960. "If you look at the ISM as it relates job growth, there's an important correlation coming out of every recession since 1960. When the ISM crossed above 55, the three month moving average for non farm payroll growth was positive, except for 1960, and it went positive the next month," he said.

Darda said he is looking to adjust his outlook for non farm payrolls for October, but will do so after ISM nonmanufacturing data is released Wednesday. Friday's employment report is the next big data item markets are looking ahead to, and the consensus is for a loss of about 170,000 non farm payrolls.

"We were at -150,000, but it might be even better than that," he said.

"Folks who are saying it's different this time, well it's not different this time..payrolls this week should be interesting. We'd hope and expect to see a significant tapering off of job losses. The indicators that would tend to lead have been doing what they should be doing," he said.

"I think people have been way too quick to judge this recovery based on temporary government stimulus factors. I think there's an underlying real estate recovery here that goes beyond the the tax credit. I think there's an underlying auto recovery that goes beyond clunkers," he said.

"This has V-shaped recovery written all over it," he said. "The deeper the recession the stronger the bounce back."

Citigroup economist Steve Wieting said ISM was encouraging on a lot of levels, including the 7-point jump in the employment index to 53.1. But he said there's one aspect of the report that causes some concern. "The fact that the production readings eclipsed the order readings is not good," he said.

"The orders index has slowed its growth rate for the past two months," he said. "I would argue that the very sharp snap back that you saw in manufacturing in the third quarter, that you don't accelerate it."

"I think we're headed to plenty of more growth in manufacturing output. That's going to be uninterrupted, but the speed of the recovery is showing signs of exhaustion," he said.

Auto sales are expected to top September levels when they are reported individually by manufacturers throughout the day Tuesday. Wieting expects sales to show a 10.4 million annualized rate.

He too expects the Fed to hold off from making any moves when it meets this week.

Earnings Central

Earnings reports are also expected Tuesday morning from American Tower, Emerson Electric, Intercontinental Exchange, Och-Ziff Capital, Cameron International, Amerisource Bergen, Rowan Cos, Health Net and Cognizant Tech. Kraft and Hartford Financial report after the close.

Companies Reportingamt37.090.27+0.73%3,664,093emr38.100.35+0.93%7,943,460ice102.972.78+2.77%994,973ozm11.95-0.18-1.48%355,970cam37.370.40+1.08%4,149,880abc22.510.36+1.63%3,992,896roc19.81-0.07-0.35%534,166ctsh38.760.11+0.28%4,408,394kft27.620.10+0.36%11,793,292hig24.790.27+1.1%9,976,416

No hints, winks, nods from Fed about rate hikes

Central bankers will maintain 'extended period' language -- for now

The Federal Reserve will not give the market any hints, winks or nods about its battle plan for pushing interest rates higher after their meeting concludes on Wednesday, economists said.

The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero, where the Fed's target has been since last December. The Federal Open Market Committee begins its two-day meeting on Tuesday. An announcement is expected Wednesday at about 2:15 p.m. Eastern.

"The facts on the ground -- high unemployment, low inflation, no net private-sector job creation -- suggest to us that it is inconceivable that policy will actually change on Nov. 4," said the economic team at Credit Suisse in a report to clients.

A report in the Financial Times on Oct. 23 set off a firestorm when it suggested that the Fed was considering scrapping its promise to keep rates "exceptionally low" for "an extended period."

The 'extended period' phrase has been in place since March. As the dust has settled, most Fed watchers have concluded that Wednesday is too early for the central bank to edit the language.

"We don't expect them to move away from the extended-period language," said Dean Maki, chief U.S. economist at Barclays Capital Inc., in New York.

Veteran Fed watcher David Jones of DMJ Advisors agreed: "I don't see them really coming up with anything new," he said.

"I think they will stick with interest rates in the zero to quarter-point range and will mention that economic conditions are better, but still justify rates at low levels for an extended period," Jones said.

Worried about growth, or spooked by inflation?

Analysts still believe that the majority at the Fed, clustered around Fed Chairman Ben Bernanke, remains worried about the economic outlook and the consequences of signaling a tightening too soon.

The U.S. economy grew at a 3.5% annual rate in the third quarter, its fastest growth rate in two years.

Economists generally believe that growth will be moderate going forward, in the range of 2% to 3.5%. And there remains a key unanswered question about whether the economy can stand on its own without massive government stimulus.

For the Fed majority, agreeing to a change in language now risks accelerating the market's expectations of a rate hike, Maki said.

Maki doesn't expect the Fed to raise rates until next September.

"What is the point changing the language, if not to signal tightening is commencing relatively soon?" Maki asked.

On the other side of the equation are several regional Fed bank presidents, who remain much more worried about the inflation outlook. They support a change in language because it would give the Fed flexibility to move quickly if the economy turns out to be much stronger than expected.

Some analysts agree scrapping the 'extended period' language is justified.

"The current circumstances suggest that the existing guidance on interest rates...is probably due for a change," said economists at Morgan Stanley.

Some economists admit their expectation of no change in language is based on a hunch that the Fed would have wanted to do a better job of signaling the move, and that the Fed would have given hints that it was thinking of altering the language.

"Fed speakers did not sound particularly hawkish during the inter-meeting period," noted economists at BNP Paribas.

However, former Fed Gov. Lawrence Meyer was one of the first analysts to note that the central bankers were not sticking to the exceptionally-low-rates-for-extended-period script during their remarks since the last meeting.

But Meyer thinks there is an "extremely low probability" that the language will be changed on Wednesday.

Looking past this week

After this meeting, however, all bets on language change are off.

Of course, upcoming economic data play the central role in the Fed's decisions, analysts said.

The language could be altered as early at the last FOMC meeting of the year on Dec. 15-16. Most economists, at the moment, have penciled in a wording change early next year and a rate hike sometime after June.

Lou Crandall, chief economist at Wrightson ICAP, said Fed watchers would be wise to circle a speech that Bernanke is scheduled to make to the Economic Club of New York on Nov. 16.

"It is not inconceivable that the FOMC might start to fiddle with the adjectives in its statement as soon as the December FOMC meeting. With this issue looming over the market, Chairman Bernanke's speech...will be a hot ticket," Crandall said.

Asia:

Asian stocks fluctuated as concern over the withdrawal of stimulus measures overshadowed Ford Motor Co.'s unexpected profit and a rally in gold prices.

National Australia Bank Ltd. sank 1.5 percent ahead of what economists predict will be the country's second interest-rate increase in four weeks. Hyundai Motor Co., which controls 4.4 percent of the U.S. auto market, added 2.9 percent in Seoul as Ford said it expects to be "solidly profitable" in 2011. Zijin Mining Group Co., China's No. 1 gold producer, rose 3.4 percent in Hong Kong after the precious metal climbed to a one-week high.

The MSCI Asia Pacific excluding Japan Index swung between gains and losses at least six times and was little changed at 388.76 as of 10:55 a.m. in Hong Kong. The gauge has surged 90 percent from a three-month low on March 2 on signs government stimulus measures will revive the global economy.

"We're tending towards the view that we will see some relapse next year as people basically lose faith in governments' ability to continue to come to the rescue," said Peter Elston, a Singapore-based strategist at Aberdeen Asset Management Plc, which had about $234 billon under management as of Sept. 30.

Japanese markets are closed for a holiday. China's Shanghai Composite Index climbed 1 percent and Hong Kong's Hang Seng Index lost 0.3 percent. Australia's S&P/ASX 200 Index and South Korea's Kospi Index both dropped 0.2 percent.

Futures on the U.S. Standard & Poor's 500 Index added 0.2 percent. The gauge advanced 0.7 percent yesterday as the Institute for Supply Management's factory index rose to a three- year high.

Higher Interest Rates?

National Australia Bank, the country's third-largest by market value, lost 1.5 percent to A$28.46, while Westpac Banking Corp., the second biggest, dropped 1.3 percent to A$25.26.

Australia's central bank will raise its overnight cash rate target to 3.5 percent from 3.25 percent at 2:30 p.m. in Sydney, according to 18 of 22 economists surveyed by Bloomberg News. The rest expect a half-point increase. Futures traders are betting on a quarter-point boost.

Australia on Oct. 6 became the first Group of 20 nation to raise interest rates amid signs of strength in its economy, while the Bank of Japan said last week it will let its programs of buying corporate debt expire at the end of the year.

Investor concern about the withdrawal of stimulus policies and lower-than-estimated profits at companies from PetroChina Co. to National Australia Bank Ltd. have dragged the MSCI Asia Pacific Index, which includes Japan, down by 5 percent from this year's high on Oct. 20.

Hyundai Motor, Kia

The measure lost 1.3 percent last month, the first drop since February. Stocks on the MSCI gauge trade at an average 22 times estimated profit, the lowest level since May 14, according to Bloomberg data.

"Further improvements in the economic and corporate news will help justify valuations," said Jason Teh, who helps manage $3.2 billion at Investors Mutual in Sydney. "A lot of stocks have had a good run, making it harder to find value in this market."

Ford, the only major U.S. automaker to avoid bankruptcy, posted an unexpected third-quarter net income of $997 million, its first operating profit since early 2008 on smaller discounts and higher sales. The company's shares surged 8.3 percent yesterday.

In Seoul, Hyundai Motor rose 2.9 percent to 105,000 won. The company controlled 4.4 percent of the U.S. auto market at the end of September, according to Autodata Corp. Kia Motors Corp., which got 30 percent of its revenue last year in North America, gained 2 percent to 18,000 won.

Zijin Mining rose 3.4 percent to HK$7.92 after gold futures in New York gained 1.2 percent in after-hours trading. Prices jumped 1.3 percent to $1,054 an ounce in New York yesterday, the highest closing level since Oct. 23.

Newcrest Mining Ltd., Australia's largest gold producer, climbed 4.8 percent to A$33.65, while Lihir Gold Ltd. added 3.6 percent to A$3.15.

Nikkei 225

Japan's market was shut because of a public holiday.

HSI 21529.99 -90.2 -0.42%. (08.51 AM IST).

SSE Composite 3076.65 3110.84 3114.13 3078.94 + 1.11%. (08.52 AM IST)

India:

Sensex on Friday closed below 16,000 level.

Among 30 sensex stocks, 19 declined and 11 ended with gains.

The 30-share BSE Sensex declined 156.44 points or 0.97%, to settle at 15,896.28, after seeing a fall of 464.6 points loss from its day's high 16,360.88. The 50-share NSE Nifty touched an intraday low of 4687.50 and corrected nearly 142 points from its day's high of 4853.65. It slipped 0.82% or 38.85 points, to close at 4711.70. The benchmark indices plunged 5.44% and 5.7% in five days, respectively.

The selling spread to select other heavyweights like BHEL, Larsen & Toubro, ONGC and IT stocks, which saw the index slide to a low of 15,805 - down 556 points from the day's high. Eventaully, the index ended with a loss of 156 points at 15,896.

In the process, the Sensex recorded losses throughout the week and was down 5.4% (915 points) for the week.

Bears reigned the markets for the whole week and hammered the Sensex, which closed below the 16,000 mark for the first time in 36 sessions. The Nifty also touched the 4,700 mark during the day.

Volumes remained above the Rs 1 lakh crore mark for the fourth day in a row. The Nifty futures turned in discount after a long time.

Today's listing, Indiabulls Power ended its first trading session at a hefty discount of 15.11% to its issue price of Rs 45. The share closed at Rs 38.20 on the NSE.

Total traded turnover was at Rs 1,04,704.24 crore. This included Rs 20,177.44 crore from the NSE cash segment, Rs 78,337.49 crore from the NSE F&O and the balance Rs 6,189.31 crore from the BSE cash segment.   

While the Sensex, which soared to 16,360.88 in early trade but tumbled to 15,805.20 around mid afternoon, ended the session with a loss of 156.44 points or 0.97% at 15,896.28, the broader 50-stock Nifty index of the National Stock Exchange closed at 4711.70, netting a loss of 38.85 points or 0.82%. The Nifty touched a high of 4853.65 and a low of 4687.50 today.

It shed 7.2% in October--it's biggest monthly loss since a slide of 23.9% in October 2008.

Sensex sheds 7.2 pct on Oct; 5.4 pct this week

The Sensex is still up 64.8% this year.

BSE Sensex posts worst monthly loss in a year

Sensex down all sessions this week

NSE, BSE to extend timing by next month

ICICI staff may get bonus

CAG audit of RIL KG D6 a/cs this month

Maruti October sales rise 32%

Bajaj Auto Oct. motor cycle sales mounts 52%

GM India Oct sales up by 15 per cent at 7,413 units

Hyundai India total sales stands at 11 per cent, domestic jumps 41.4 per cent in October

TVS Motor posts 12 per cent growth at 131,029 units in Oct'09

Hero Honda grows by 1,707 units in Oct this year

Eicher Motors Q3 gross income jumps 63.4 per cent to Rs. 927.2 crore

Skoda Auto India Oct sales grow 98 per cent to 1,753 units

MTN looking at Asia without Bharti

Unitech moves HC to recover dues

Nagarjuna Construction Q2 net up 4%

MTNL to offer 3G connections for Rs 109

Patni Q3 net up 25%

Suzlon Q2 net loss of Rs 355cr

JK Cement Q2 net down 7% at Rs 65 cr

Great Offshore Q2 net up 86%

Omaxe Q2 net up 50% at Rs 23 cr

J&K Bank Q2 net up 16%  

 

INVESTMENT VIEW

Rishi Laser-Wildcard

BSE CodeL526861
 

Construction equipment (CE) constitutes around 40-45% of sales of company. However, there were virtually very little sales to this sector in H2 FY'09 as the whole industry was facing over capacities and lower demand. 

Broadly according to management, the Construction Equipment industry can be divided into two-Light CE and Heavy CE. The lighter ones which includes pavers, compactors etc have already reached to Mar'08 levels after de-growth in FY'09 particularly the H2 FY'09. But the industry is not able to grow at above 10-15% currently and the company expects the same level for FY'10. From FY'11 onwards the momentum will catch up in the CE industry and the high growth of around 25-30% will return to the industry. All this depends purely on the infrastructure spends. If the infrastructure spending continues to remain strong, then growth and orders will continue to flow. 

CE industry sales are largely catered from two Bangalore plants of the company and one unit of Pune. One Bangalore plant for which the company had incurred the capex of around Rs 20 crore and put to operation in FY'09 was hived off from the company to a subsidiary named Rishi Consfab in Aug'09. In this subsidiary, the company hived off 26% stake to L&T Finance and remaining 74% stake is held by the company.

 

This subsidiary became a dedicated vendor for various assemblies used in manufacturing Excavators for L&T Komatsu. These assemblies include manufacturing arm, platform, doors, and such other parts of structure of excavators. With that gross block of Rs 20 crore along with debt of about Rs 10 crore will be passed to this subsidiary. 

The other Bangalore plant is dedicated for Volvo, BEML, JCB and other small vendors. The company supplies structures for compactors and other finished sheet metals to Volvo. The company supplies the tailor made sheet metals and other structures to BEML both for railways and for earth moving equipments and some structures and welded products to JCB.

 

This plant has capacity to generate sales of about Rs 3 crore per month, it was scaled down to about Rs 1 crore in H2 FY'09 but now has reached around Rs 1.5 crore per month sales. 

Pune plant is the one with constitutes about 40% of total turnover of the company and is operating at underutilized capacity. The company caters to Automotive industry, construction equipment industry, heavy engineering industries, Metro railways, Paint shops, and such other engineering, welding and cutting activities in this plant.

 

The entire plant is divided into three units. One unit dedicates to automotive industry in which the company sells the steel fabrications to Taco Hendrickson's unit, which manufactures Truck Axles for more than 26 tons. The other unit is for JCB CE Pune factory and for Metro railways and for other job work contracts of welding and cutting of steel sheets. The unit has got all the authorization and certification to supply structures to Metro coaches.

 

Rishi Laser has exclusive tie up with Bombardier Transportation (BT) for supply of various structures for Metro rail coaches. This includes, railway roof, Stainless Steel assemblies, doors, cabinets, windows and such other welding and cutting activities. This will be in job work form. Presently the company is having job work order of Rs 18 crore from BT, which is executable over one and half year period. 

The third unit in Pune caters to heavy fabrication for heavy engineering industries. This includes activities of Oven shops for cars, steel plants, heavy structures like blades used in heavy turbines for Hydro generation plants etc. The company has necessary building and shed to undertake any heavy fabrication activities.

 

The company plans to venture into manufacturing of heavy bodies like chimney stands, transformer structure, pressure vessels, heat exchangers etc as there is no capex involved and the job involves more of welding, testing and dedicated skilled labour. The company is in discussion with BHEL for some of boiler stands manufacturing and Walchandnagar for manufacturing of conveyers for coal plants. 

The Baroda plant caters to Textile industry and Power Generation and Distribution industry. In textile industry the company supplied components, panels etc but the sales never picked up because the industry as a whole never performed as per the expectation. However, the Power Generation and Distribution segment is picking up very well. The company supplies SS box and switchgear kits to ABB, Areva, Alstom and such other power distribution players.

 

The company supplies base sheets used in Hitech pumps from this plant. The low and high-end switchgear industry was hit badly last year and is picking up slowly. Luckily the company caters more to medium voltage switchgear and supplies to players like Schneider. The activities involve simple cutting, blending, zinc plating etc. Further the company is working strongly with Alstom for supply of motors, blades, steel sheet gates for open/close doors of water flow etc. 

Savli plant was commissioned last year largely to cater to BT orders. BT has indicated that the future Metro orders will be provided only to those vendors who are in near locality and are dedicated to the company's activities. BT's Metro rail plant in India is the largest among all the plants that it has in the world and it also plans to cater the Middle East metro rail orders from this plant. Rishi Laser expects good business in form of job work activities form BT in future. 

The company started plant in Ahmedabed in FY'09 largely for Ingersol Rand. Ingersol Rand provided land, building etc and company just had to put in some machinery and paint shops which it transferred from its Pune plant where capacity was lying idle. Ingersol Rand has in its internal report indicated that it will provide business to the company of around Rs 25 lakh per month and in next four years business of around Rs 1.5 crore per month. Activities involve steel fabrication, compression and such other assembling. 

Thus from supply of tailor made flat steel parts to many customers the company now has become a dedicated vendor for most of big vendors. 

The company has term loan of about Rs 40 crore and working capital loan of about Rs 30 crore. The company intends to pay the term loan portion, as there is no more capex required till 2012 baring some small normal capex. The company overall is operating at around 60% of its normal capacity. The company with its current capacity has potential to generate sales at consolidated level of more than Rs 180-200 crore. 

The company expects margins to return back to normal level of 17-18% by the last quarter. FY'10 sales will largely be in the range of Rs 125-130 crore (as against Rs 114 crore for FY'09. However job work activities which in included in above sales figure, which stood at Rs 8.5 crore for FY'09 will be substantially higher because of the BT job work. For the first 5 months of FY'10 the sales stood at Rs 44 crore (Rs 51 crore for 5 months of corresponding previous period) however the July and Aug combined sales stood at Rs 19 crore (Rs 18 crore for two months of corresponding previous period). 

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 

 

 Index Outlook: The long-awaited correction

Sensex (15,896.3)

The breezy roller-coaster ride that we had expected turned in to a scary hurtle downward as the Sensex plunged 914 points last week recording the largest weekly decline in the last three months. The cut was much deeper in mid and small stocks especially those reporting adverse earnings as tolerance to negative news nosedived. The truncated week ahead is likely to be influenced by the Federal Open Market Committee meeting scheduled next week and the signals that are flashed from there.

Sudden reversal in stock prices made volumes soar sky-high, especially in derivative segment. Volumes in futures and options segment reached record levels mid-week close to the expiry of October contracts. The vicious side of the market was amply demonstrated in the way it waited for the belief in the current rally's invincibility to get all-pervasive before reversing lower: waiting for the last bear to turn in to a bull. Sensex' close below the 50-day moving average is a negative as is the close below the previous peak of 16,002. 10-day rate of change indicator declined in to the negative zone for the first time since August and the 14-day relative strength index has declined to 32. The weekly oscillators are however still in the positive zone implying that though the short-term trend is very weak, the medium term trend is not overtly so yet.

Though we had anticipated a correction last week, the magnitude was far greater than envisaged. We had expected a terminal corrective wave that moved sideways for a few weeks before the move from July lows ended. But the decline last week throws up a zigzag formation from July lows that could mark the completion of the C wave from March lows.

But we will wait for a confirmation of one more week to see if this decline prolongs and leads the index to a firm close below 16,000. Another fight-back by the bulls from these levels can result in a sideways move between 16,000 and 18000 for the rest of this year, indicated in our previous columns.

If the Sensex records a strong close below 16,000 next week, it would mean that an intermediate term correction is in progress that has the minimum targets of 14659 and 13885 – the opportunity that those who have missed the rally so far, are waiting for.

A rebound next week can take the Sensex higher to 16,450, 16,650 or 16,848. Failure to move above the first resistance would imply that weakness will persist to drag the index down to 14917 or 14740.

Nifty (4,711.7)

It was a harsh 285-point tumble in the Nifty last week. The supports at which we had expected the index to halt were pierced effortlessly.

We had expected one more leg higher to 5200 or 5300 followed by some sideways movement before the entire move from the 3918 low ended. But the decline last week implies that the move from this low has ended at 5182. It is a little early to decide if this is the end of the rally that began in March. The current decline needs to prolong next week and Nifty needs to record a strong close below 4700 to signal an intermediate term correction that has the minimum targets of 4389 and 4170.

The short-term trend in the index is down. A brief pull-back can take Nifty to 4876, 4940 or 4993.

Failure to move past the first resistance would be the cue to initiate fresh shorts with a stop at 5000. Downward targets for the week are 4581 and 4497.

Global Cues

The much-awaited correction finally materialised in global equity markets and many benchmarks gave up over 5 per cent last week. CBOE Volatility Index jumped above 30 on Friday, the highest level seen since this July.

Key resistance for the VIX is at 33 where the 200-day moving average is positioned. Close above this level will imply that the investor sentiment will stay edgy for a few more months.

Surprisingly the chart of the Dow appears much more resilient when compared to other global indices.

The short-term trend has been roiled by the 250-point decline on Friday but the index is holding above the 50-day moving average at 9725. Oscillators are however pointing towards the decline continuing in the near term. Medium-term target for the index is 9350.

Latin American benchmarks recorded deep cuts following decline in commodity prices.

Asian markets did not fare too badly last week though some such as the Seoul Composite Index, Thailand's SET and Sri Lanka All share Index are already in a medium-term down trend.

 

Pivotals: Reliance Industries (Rs 1,931.2)

RIL took the downward trajectory last week and closed 116 points lower. The stock is sustaining below the 50-day moving average for the second consecutive week and its 10-day rate of change oscillator has been declining deep in to negative territory.

This indicates that the stock is in a medium-term down-trend that can prolong. Targets for the C wave from the Rs 2,490 top are Rs 1,827 and Rs 1,532. Presence of 200-day moving average at Rs 1,805 makes the first target critical.

Short-term trend in the stock is down but it has strong support around Rs 1,900 from where a bounce to Rs 2,080 or Rs 2,125 is possible.

Failure to move above the first support will be the cue for initiating fresh short positions.

SBI (Rs 2,191)

SBI plummeted to an intra-week low of Rs 2,118 by Wednesday before making an attempt to stabilise itself. A three-wave zigzag from March lows appears to have been completed at the recent peak of Rs 2,500. Minimum target of the decline that will now follow is Rs 1,900 with the 50-day moving average at Rs 2,044 providing some interim support.

Near-term resistances for SBI are at Rs 2,270 and Rs 2,360. A close above the second resistance is required to mitigate the bearish outlook. Reversal below the first resistance will drag the stock to Rs 2,062 or Rs 1,918.

Tata Steel (Rs 471.6)

The 11 per cent cut received by Tata Steel last week has marred the medium-term outlook and has opened the possibility of the termination of the up-trend that began from the March low of Rs 148. It needs to be noted that Tata Steel is one of the underperformers among the pivotals since it has retraced only half the losses made in 2008 while some of its peers are perched well above their 2008 peaks.

But the stock has already retraced 30 per cent of the move made since the March trough completing the minimum retracement requirement for a correction. The decline can halt here.

If it continues, next target would be Rs 427.

Short-term trend in the stock is down and rallies will face resistances at Rs 515, Rs 530 and Rs 548. Reversal from the first resistance will give traders the perfect place to initiate fresh short positions.

Infosys (Rs 2,205.4)

Infosys bore the bear's onslaught pretty well last week, recording a mild weekly decline of 2 per cent. Immediate support for the stock is at Rs 2,120 and the short-term trend will turn down only on a close below this level. Subsequent targets remain at Rs 1,936 or Rs 1,906.

Key resistance for the week is at Rs 2,318 and investors ought to stay wary as long as the stock trades below this level. Strong move above Rs 2,415 is needed to make the outlook gung-ho once again.

ONGC (Rs 1,132.7)

ONGC too fared relatively better last week and closed with a mild Rs 42 loss.

The stock has, however, closed below the 50-day moving average at Rs 1,179 and the oscillators in both the daily as well as the weekly chart denote bearishness.

Fresh shorts are however recommended only on a decline below Rs 1,120. Next target is Rs 1,080.

Medium-term view will stay negative as long as the stock trades below Rs 1,200. Medium-term target on a decline below Rs 1,080 is Rs 965.

Maruti Suzuki (Rs 1,403)

Maruti wasn't spared from the sell-off last week and the stock closed 7 per cent lower. Rallies would face strong resistance at Rs 1,500 and Rs 1,525. Medium-term target if the decline continues is Rs 1,250.

Index Strategy: Bear spread to play the market weakness

The steep decline in Nifty last week appears to have turned the market mood on its head, from a positive growth one to the present dilly-dallying, doubtful one. Besides, with the earnings season now behind us there is also little to speak of in terms of near-term upside triggers for the market. In keeping with the sombre mood, we suggest traders to set a bear put spread on the index to benefit from further weakness. You can do this by buying Nifty November 4,700 put option and simultaneously selling Nifty November 4,600 put. This would result in a net initial debit as the strategy involves buying in the money put as against selling one that is out of money. In this case, you will have to shell out Rs 138 for buying Nifty November 4,700 put while you will receive Rs 97 when you write Nifty November 4,600 put. On the whole, the spread will cost you Rs 41/share. While it is advisable to execute both the legs of the strategy simultaneously to benefit from lower margin money requirement, you can time the purchase and sale of options depending on the day's market movement.

Maximum profit potential: The maximum profit for this spread will occur when Nifty moves below the strike price of the sold option, i.e. 4,600. The maximum profit potential will be limited to the difference between the two strikes minus the net debit paid or the cost of setting the spread. In this case, the maximum profit will be Rs 59 [(4,700-4,600) – Rs 41].

Maximum loss potential: When your spread is totally out of money i.e. when Nifty value is higher than the 4,700, the maximum loss that you can suffer will be limited to the net debit paid, Rs 41 – that is the money that was spent initially in setting the bear put spread.

So, in essence you will be taking a maximum risk of Rs 41 to earn a maximum profit of Rs 59. Traders with a slightly more bearish view can tweak the strike prices further low using Nifty November 4,700 put and Nifty November 4,500 put. The spread will entail an initial cost of Rs 71 for a maximum profit potential of Rs 129.

When to exit?

Traders should consider booking profits and closing the positions as soon as the underlying trends below the strike price of the sold put option. But in the meanwhile, if you feel that the likelihood of the underlying moving down is low, you can consider closing the position prematurely

--
Arvind Parekh
+ 91 98432 32381

--
Arvind Parekh
+ 91 98432 32381