 | 5088.70 | ( 0.17 %) | 8.45 |  |
| 1 | 2 | 3 | ||
| Resistance | 5115.55 | 5142.40 | 5166.15 | |
| Support | 5064.95 | 5041.20 | 5014.35 | |
 | 16994.49 | ( 0.13 %) | 22.79 | | |
| 1 | 2 | 3 | |||
| Resistance | 17082.76 | 17171.03 | 17244.35 | ||
| Support | 16921.17 | 16847.85 | 16759.58 | ||
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 05-Mar-2010 | 2623.08 | 1709.74 | 913.34 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 05-Mar-2010 | 1049.16 | 1710.42 | -661.26 |
Sensex (16,994.4)
The long weekend following the Union Budget presentation helped market participants determine that there were no hidden demons in the Budget fine-print, helping stock prices to surge higher in the first two sessions of the week. Since the global environment is relatively benign despite the occasional rumble from Greece, it is the reception to NMDC's share offer that will determine the near term sentiment in our market.
Trading activity picked up last week and small and mid-cap stocks were back in the limelight. Volumes were brisk in both cash and derivative segment. FIIs contributed to the feeling of well-being by buying stocks worth nearly Rs 4,000 crore this month. Domestic institutions were more tentative and have net sold Rs 2,500 crore in the same period. Traders continued to build positions in the derivative segment and open interest has risen above Rs 1 lakh crore once again.
Sensex moved up to 17,012 on Wednesday before the mood turned cautious and the index vacillated around the 17,000 mark in the last two sessions of the week. That the index has managed a close above the 50-day moving average is a positive. Oscillators in the daily chart are, however, reaching overbought levels. Weekly oscillators are hovering in the neutral zone implying that the medium-term downtrend has not reversed yet.
The behaviour of the 10-month rate of change oscillator is very interesting. This oscillator, that had moved up vertically from March to September 2009 has reversed sharply and has given up half its gains implying that momentum has deteriorated significantly from a long-term perspective.
The Sensex is currently poised tantalisingly at the key short-term resistance at 17,000. As pointed in our previous columns, strong close above this level will turn the medium-term view neutral and pave the way for a rally towards the recent peak of 17,790. Conversely, reversal from here will drag the index down to 15,775 or 14,951.
Where does that leave the medium-term view? We have been reiterating that it is too soon to gauge the shape that the current correction can take, whether it will be sharp and swift one or a long-drawn sideways correction. We had also envisaged a "terminal corrective that makes the index move between 14,000 and 18,000 for a few months in the initial months" in our outlook for 2010 published on January 3. We had also then noted that "investors ought to stay on their guard as long as the 18,500 level is not surpassed strongly."
A move beyond 17,000 can take the Sensex towards the key intermediate term resistance band between 17,800 and 18,200 once more. It is however doubtful if this level can be cleared just yet. What can follow is another bout of choppy movement in the aforesaid range between 14,000 and 18,000.
For the week ahead, the short-term trend in the Sensex is up. But caution needs to be exercised since the index is poised at critical short-term resistance level. Short-term investors can buy in declines as long as the index holds above 16,545. If this level is not breached, then the Sensex can rally to 17,509 or 17,790 in the days ahead. Short-term view will turn negative again on a decline below 16,200.
Nifty (5,088.7)
The Nifty moved contrary to our expectation last week and rallied to the intra-week peak of Rs 5,118.6. Despite the strong 166-point weekly gain, this index has lost its way slightly in the last couple of sessions. The short-term trend however continues to be up and traders can hold their long positions with stop at 4,990.
Since the 50-day moving average is also positioned at 5,000, the band between 4,980 and 5,000 will be an important support zone for the near-term. If this support holds, the index can rally to 5,247 or 5,310 in the days ahead.
Subsequent support is at 4,845. Traders should avoid fresh long positions on a decline below this level.
The medium-term trend in this index will turn neutral on a strong close above 5,067 and will imply an impending rally towards a new yearly high. However, the index continues to have strong intermediate term resistance around 5,300 and a sideways move between 4,500 and 5,300 is likely for few more months.
Global equity had a strong week and most benchmarks closed 3 to four per cent higher helping many of them to close at fresh yearly highs. CBOE volatility index closed at 17.4, close to the low at 16.8 recorded on January 8 implying that investor sentiment is once more getting too complacent for comfort.
The sharp up-move of Friday has helped European benchmarks such as the DAX, CAC and DJ Euro STOXX 50 retrace 61.8 per cent of the current correction. If the rally continues next week, the medium term trend in these indices would turn neutral. Commodities were relatively subdued and CRB index closed on a flat note.
US equities soared Friday as employers cut fewer jobs than expected helping the Dow scale the critical resistance at 10,400. As pointed out in our previous columns, move above 10,400 will make the medium term trend neutral and pave the way for a new 2010 high in this index. There are two trajectories that this index can then take over the medium term, a)a sideways move between 9,800 and 10,800 for a few more months or b) a rally to 11,300 before it reverses lower. —
Budget-day impact on stocks is short-lived
Reacting euphorically to Budget 2010, the stock market has singled out non-banking finance companies (NBFCs) and public sector banks as the key sector 'beneficiaries' .
In the week since the Budget, stocks of NBFCs such as Reliance Capital, Bajaj Auto Finance and Shriram Transport Finance are up 7-12 per cent, on the prospect of the Reserve Bank of India (RBI) handing out more banking licences.
Similarly, the promise of a fresh recapitalisation package saw Allahabad Bank, Dena Bank and Corporation Bank gaining 9-11 per cent. Will gains for these sectors last? Probably not, if the past is anything to go by.
A study of price movements following the last four Budgets clearly shows that sectors that received Budget-day largesse in the form of 'favourable' policy announcements often did not hold on to gains in the year that followed. Nor did sectors that were battered due to an 'unfriendly' Budget continue in the same vein thereafter.
Moves don't last
Consider these cases. An unexpected excise duty cut on small cars saw the stock of Maruti Suzuki jump 12 per cent in the week following the February 2008 Budget. But a year down the line, the stock had lost nearly 30 per cent in value. In the 2006 Budget, textile companies reaped a bounty on Budget Day with moves such as duty cuts and a higher allocation to the Textile Upgradation Fund. However, a year later, stocks such as Indo Rama Synthetics, Vardhman Textiles and Century Enka were trading 25-35 per cent lower even while Sensex had soared 31 per cent. The textile sector was in fact a regular recipient of positive announcements in three Budgets – in 2005, 2006 and 2007. Yet, the stocks did no better than the Sensex in any of these years.
In 2007, realty companies were battered 5 per cent on Budget Day itself after a proposal to levy service tax on residential/commercial property rentals. But it was realty stocks that outpaced the Sensex with a 66-per-cent gain in the year that followed.
Remain on paper
One reason why sectors that are at the receiving end of Budget proposals don't seem to hold on to the initial gains, is that policy announcements made in the Budget do not always translate into action on the ground. Do phrases such as "nutrient-based subsidy for fertilisers", "people's participation in the divestment programme" and "viable pricing mechanism for petroleum products" sound familiar? Well, these phrases were mentioned not only in the 2010 Budget, but also in the previous one. Yet, the nutrient-based subsidy for fertilisers is only now being taken up, oil price deregulation remains on paper and the divestment programme is only now gathering steam. The proposal for direct subsidy to farmers was set in motion in 2007, but is yet to see the light of the day.
Broader trends
The other key reason why investors should not read too much into the market's Budget reactions is that broader markets quickly shift focus to other factors, once D-Day is over. If the broader market is in a bearish trend, even a much-feted Budget may not keep the markets upbeat for very long.
Conversely, if the market is on an uptrend, a 'market-unfriendly' Budget is quickly forgotten. Do you remember that the Sensex tanked 5.8 per cent intra-day after the previous Budget was unveiled on July 6, 2009? You probably don't, because the Sensex went on to gain 24 per cent by the end of 2009.
Stock Strategy: Short straddle on Cairn
Cairn India (Rs 269): Despite the broader markets witnessing a sharp turnaround, the stock of Cairn India has been moving within a tight band.
The trend is likely to continue for some more time as it faces strong resistance near Rs 305-309 levels. It however has a support around Rs 207-215.
We expect the stock to continue moving in a narrow band of Rs 250-280 and only a conclusive break from this range would set a clear trend for the stock.
But if the stock manages to breach past Rs 310, it can move above its all-time high level of Rs 342.
On the other hand, a drop below Rs 207 could weaken it to as low as Rs 160.
Cairn India futures (market lot 1,250) has seen a steady accumulation in open interest in the last couple of days; though there was some pressure on the open interest front post budget. The Cairn India futures ended at a premium to the spot close of Rs 267, suggesting that there may have been accumulation of long positions.
Among the options, the 270-strike of calls and puts saw a moderate accumulation, while the 280 call witnessed a slightly higher accumulation. This indicates that the stock could move around the Rs 270 range, but may have only a limited upsnide potential.
Strategy: Consider short straddle on Cairn India. This can be initiated by selling 270 strike call and put, which ended Friday at a premium of Rs 7 and Rs 8.1 respectively. Note that short straddle gives only a limited profit but has an unlimited risk. This strategy is best used when one thinks that the underlying securities will experience only little volatility in the near-term. Maximum profit for the short straddle is achieved when the underlying stock price on expiration date is trading at the strike price of the options sold.
Consider holding this strategy for at least two weeks.
Arvind Parekh
+ 91 98432 32381
