Last Week, Nifty lost 3.75% and closed near 5,900 level. On the weekly chart, Nifty has formed a Bearish Engulfing pattern, indicating further fall. The Bearish Engulfing Pattern is an important top reversal signal. Today, Nifty is likely to open on a flat note following mixed cues from global markets. Immediate bigger support for Nifty now comes at 5,883 (low formed on Friday) and break below this level it may check 5,820-5,750 again on the downside. However, short covering could be witnessed from the 5,883 to 5,850 level, if any positive triggers come. Immediate resistance comes at 5,937 (100 days moving Average) and 6,005 (20 Days moving Average). We can expect a pullback in market this week because Infosys may raise earnings forecast with the improving growth outlook for the US. However, unless Nifty closes above 6,020 levels (50 days moving Average), investors should remain cautious. Technical indicators like MACD, RSI and stochastic are also supporting its downtrend move. MACD is likely to cross the signal line (9 Days Exponential moving average) from the above. RSI and stochastic has reversed their trend, crossing signal line from the above which indicates more correction remains in the market. Further, lower band of the Bollinger band now stands around 5,835 levels. Nifty could bounce back from this level. Corporate earnings for Q3 December 2010, which will start trickling in from this week, will set the direction for the market in the near term. On the derivative front, Nifty January future ended at 5,896.10 (LTP) with a discount of 8.5 points. Nifty futures prices declined along with incline in the open interest but with decline in cost of carry indicating short position built up at higher level. There was significant short position accumulated in OTM Call options. Most of the open interest accretion witnessed in the 6,200 and 6,100 calls taking the cumulative open interest to highest level. | ||
RAJESH EXPORT (BUY)
BANK OF INDIA (BUY)
ABG SHIPYARD (SELL)
ESCORTS (SELL)
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| US markets | ||
| US markets closed lower as mixed jobs report and lower consumer credit data weighed on investors sentiments. Initially markets were mixed as investors reacted to Labor Department's closely watched monthly employment report, which showed lower than expected job growth in December but also showed drop in the unemployment rate. US non-farm payroll employment increased by 1,03,000 jobs in December compared to market expectation of about 1,60,000 jobs increase. However, report also showed that the unemployment rate fell to 9.4% in December compared to markets expectation of 9.7% decrease. Later, markets extended losses after Federal Reserve said that consumer credit increased by USD 1.35 billion in November compared to market expectation of USD 2 billion increase. However, rise in railroad stock after upbeat results and comments from railroad equipment supplier Greenbrier, capped losses. | ||
| European markets | ||
| European markets ended lower pulled by mining stocks after poor economic data. Commodity producers weakened after crude and metals prices slipped from recent highs. A higher than expected fall in German production also dampened the sentiments. German industrial production fell 0.7% in November, the nation's economics ministry reported Friday. Economists had forecast a 0.2% decline. Investors also cut position after Eurostat report revealed that gross domestic product in the eurozone grew only 0.3% in the third quarter instead of 0.4% as previously estimated. Adding to chaos, rise in cost of insuring Western European sovereign debt against default to record-high territory pulled equities down. | ||
| Indian markets (Prev Day) | ||
| The domestic bourses ended the last trading session of the week on a disappointing note, as the benchmark indices witnessed bloodbath amidst hefty sell offs across sectors. The market started off the session weak, as the benchmark indices plunged below the baseline amidst mixed global cues. Most of the Asian stocks were trading lower as commodity prices plunged and Samsung Electronics Co.'s reported profit missed street estimates. Soon after the negative start, the market dipped further as the Metal and Auto space weighed heavily on the sentiment. No sign of recovery was seen during the day and the market continued to plunge as the day progressed with the benchmark Nifty breaking the 5,900 level first and the 5,800 mark towards the end. The selling pressure came as institutions sold ahead of the weekend and as concerns rose over an interest rate hike by the Reserve Bank of India in its policy meet later this month in order to tackle the rising inflation. Finally the broader indices closed deep into the negative terrain near their respective intraday lows. The negative opening for the European bourses further tampered the sentiment during the final couple of hours. In the sectorial front, the Metal space played the major spoilsport during today's trade, contributing majorly towards the substantial market plunge and declined by 4.03%. Besides, huge selling pressure was also witnessed among the Auto and IT space which declined by 3.26% and 2.83% respectively. Both the Nifty and Sensex witnessed hefty sell offs and continued making fresh intraday lows throughout the session. | ||
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- Supp / Resis SPOT/CASH LEVELS FOR 11th Jan 2010 for intraday
The week began with the Sensex nervously perched at 20,500, eyeing soaring commodity prices. Stock prices started sliding by Tuesday led by banking stocks that were battered due to the recent spate of hike in bank deposit rates. Acceleration in food inflation proved to be last straw and the benchmark collapsed 492 points on Friday to end the week below 20,000.
Volume gathered pace towards the weekend as stocks started selling. FIIs too turned net sellers and DIIs joined them in hammering down stock prices on Friday. Open interest is surprisingly low at 1, 32,000 crore. Index put call ratio close to 1 also denotes that traders are not able to make up their minds on the direction in which the index will move in the days ahead.
The week ahead will be heavy on news-flow with India Inc. beginning to present its third quarter score-card. IIP and WPI numbers that are scheduled to be announced next week will also add to the ongoing debate on RBI's next move on monetary policy.
Friday's sell-off has roiled the momentum indicators in both the daily and weekly time-frames. 10-day rate of change oscillator has declined to the negative zone while the 14-day relative strength index is at 41, implying a bearish short-term bias. The bearish engulfing candle in the weekly candlestick chart too denotes that the weakness could continue in the upcoming weeks.
Sensex failed to live up to the promise of moving to a new high in the early part of 2011 though many of its Asian counterparts have managed to do so. Reversal from the peak of 20,665 last week implies that the downtrend that began from 21,108 in November continues to be in progress.
Last week's definitive move has however made the short-term trajectory of the index clearer.
The most obvious count is that the third leg of the down-move from 21,108 is unfolding now with the targets of 19334, 18512 and 17689. The area between 19,000 and 19,200 will be a strong support and it is possible that the index rebounds after a brief dip below this band.
A strong close beyond 20,300 next week is required to mitigate this bearish short-term view and pave the way for rally to 20,685 or 21,338.
The week ahead is likely to be rocky with the index facing strong resistance at 20,022 and 20,264.
Inability to move above the first resistance can make the index decline to 19334 or 18955. Relentless selling pressure will give the outer target at 18,512.
Nifty (5,904.6)
Nifty recorded the peak at 6181 on Monday before ending the week 230 points lower. The short-term trend in the index is down and it will face resistance at 5998 and 6068 in the days ahead. Traders can initiate fresh shorts if the index fails to rally beyond the first resistance. Downward targets would be 5801 and 5721 for the short-term.
The medium-term downtrend from the 6335 peak appears to be continuing in the Nifty and this leg of the down move has the targets of 5801, 5567 and 5332 over the medium term. It however needs to be borne in mind that the index receives strong support in the zone between 5700 and 5800 from where a rebound is possible.
A strong close above 6068 will negate the bearish medium-term view and take the Nifty to 6167 or 6343 in the upcoming sessions.
Global CuesGlobal markets have ended the first week of 2011 on a mildly positive note. There were no runaway rallies in any market but most benchmarks managed to close in the green. CBOE Volatility Index closed a tad lower at 17.4 indicating a status quo as far as investor sentiment is concerned. As we have written earlier, a strong close below 15 in this index will imply that global stocks are in a raging bull market.
But the VIX reversed higher from this level in the last week of December.
The Dow closed on a very strong note, up 119 points last week. Medium-term targets for this index remain at 11,867, 12,000 or 12,444. Close below 11,450 is required to make the near-term outlook negative for Dow.
Many of the Asian benchmarks such as Hang Seng, Karachi 100, Malaysia's KLSE Composite, Nikkei, Seoul Composite, Straits Times Index and so on put up a strong performance last week.
Reliance Industries (Rs 1064.9)
After hovering around Rs 1080, RIL failed to gain conclusively and reversed lower last week. It managed to finish the week with a marginal gain of Rs 6.6. The stock continues to test its short-term resistance zone between Rs 1060 and Rs 1080.
Fresh long position is recommended only if the stock decisively moves above Rs 1080, in which case the target is Rs 1120. Key resistance above Rs 1120 is at Rs 1140.
Any decline can find support in the Rs 1035-1050 zone where its 200 and 50-day moving averages are placed. An emphatic dive below Rs 1030 can pull the stock lower to Rs 1010 and then to Rs 980. In the medium-term the stock continues to trade in the broad range between Rs 900 and Rs 1200.
State Bank of India (Rs 2599.8)
The stock reversed lower encountering resistance at Rs 2850 last Monday. It thereafter tumbled 7 per cent accompanied with good volumes over the week. While trending down, the stock breached its key near-term support around Rs 2700 and its 200-day moving average poised at Rs 2664.
The stock has been on a medium-term downtrend from early November. It has the potential to decline to its next key medium-term support at Rs 2500.
Traders can initiate short position with a stop-loss at Rs 2655 for a downside target of Rs 2500. Subsequent supports below this level are at Rs 2400 and 2250. The resistances for the stock are at Rs 2712 and Rs 2850.
Tata Steel (Rs 660.9)
Testing the key resistance band between Rs 680 and Rs 700, the stock reversed downwards last week by declining 2.6 per cent.
It has formed a bearish engulfing candlestick pattern, which is a bearish reversal pattern in week chart. This pattern coupled with key resistance indicates short-term reversal.
Traders can consider initiating short positions with stop-loss at Rs 680. Downside targets of the stock are Rs 640 and Rs 620. Medium-term support and resistance for the stock are pegged at Rs 600 and Rs 700 respectively.
The stock remains in a medium-term uptrend as long as it trades above Rs 575. A fall below this level will mitigate the uptrend.
Infosys Technologies (Rs 3366.5)
The stock gradually moved higher in the first four trading sessions and on Friday it marked an all-time high at Rs 3493 before plunging 3 per cent. For the week, the stock fell by Rs 78 or Rs 2.3 per cent. However, short-term trend is up for the stock from November-2010 trough. As long as the stock trades above Rs 3250, the uptrend stays in place and it can move sideways.
Key supports for the stock are at Rs 3329 and Rs 3184. Resistances are pegged at Rs 3445 and Rs 3493
Medium-term trend is up for the stock and investors can stay invested with stop-loss at Rs 2980. —
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| Nifty may witness more correction, support could be at 100 DMA Nifty faced strong resistance near 6,180 to 6,200 level during early in the week and from there continuously moved downward throughout the week. Nifty is moving below its short term 20 DMA and 50 DMA which stands at 5,938, and 6,053 respectively. Short term underlying trend seems to be negative until Nifty trade below these levels. Immediate bigger support for Nifty now comes at 5,820(100 DMA) and break below this level it may check 5,750-5,700 again on the downside. However, short covering could be witnessed from the 5,850 to 5,820 level. Immediate resistance comes at 5,938(20DMA) and 6,053(50 DMA) levels. Technical indicators like MACD, RSI and stochastic are also supporting its downtrend move. MACD is likely to cross the signal line (9 Days Exponential moving average) from the above. RSI and stochastic has reversed their trend and crossing signal line from the above which indicates more correction remains in the market.
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EID PARRY (SELL)
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Looking Forward India's medium-term growth trajectory remains promising. Higher advance tax payment by corporates in Q3 December 2010, indicating better corporate performance in the third quarter this year. The time is right to pick up fundamentally sound stocks which may have got beaten down along with their peers. Companies in sectors that are able to pass on their cost increases to consumers may enjoy greater stock market return. However, the impact of inflation and interest rates that could be visible later in the year and be a cause of earnings downgrades. The recent rise in crude oil and metal prices could also have a ripple effect on companies and consumers, leading to pressure on demand. We believe that the first half of 2011 could have muted gains as the impact of higher interest rates and inflation tampers growth momentum. The broader markets are expensively valued and the focus could shift to select mid and small caps. Corporate earnings for Q3 Dec 2010, which will start from the next week, will set the direction for the market in the near term.
| Daily Movement of Nifty  Daily Movement of Sensex, Net FIIs & MF investment Weekly return on BSE Sectoral Indices | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Natco Pharma is India based pharmaceutical company which is engaged in manufacturing of active pharmaceuticals ingredients and finished dosage formulations. With aim of scaling up, the company has filed for four products namely Lenalidomide, glatiramer, lanthanum carbonate and lansoprazole. Recently, Company has sought a voluntary licence from Pfizer to make and sell copies of the US company's HIV medicine in India, a first step to a provision that permits firms to legally make patented drugs of other companies. Natco is the first company to initiate the process for Compulsory Licensing in the country and this will be a big test case for application of the provision in India.
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| US markets were positive during the week (till Thursday). Indices started the initial trading day on a mixed note. There was a lack of any significant economic news which contributed to the directionless movement in the markets. Thereafter, the indices moved up after report showed that manufacturing sector grew at its fastest pace in seven months in December. Towards the end of the week, the indices were again mixed due to the blend of profit taking and optimism following an unexpected increase in November factory orders which contributed to the uneven trading. Finally, the Wall Street bourses were able to post moderate gains as the day's economic data showed private sector job growth exceeded economist estimates by a wide margin. Looking ahead, the investors are likely to eye the Federal Reserve's beige book, its report on the current US economic situation which is set for release in the coming week. Asian stocks traded on a positive note during the week. The markets started the first day of 2011 on upbeat note on hopes that China's efforts at keeping a lid on inflation may be working after manufacturing growth slowed in December. Moreover, upbeat US economic report and high commodity prices boosted sentiments of global economic recovery. However, in the middle of the week the asian markets tumbled due to fall in resource stocks on the grounds of weakness in gold and oil prices. Moreover, concerns over the China's central bank increasing the use of differentiated reserve requirements in 2011 and adjusting for each bank, the required level of reserves on a monthly basis also weighed on the sentiment. The markets ended mixed backed by gains in financials and rise in auto shares. However, cautious approach of investors ahead of US non farm payrolls data weighed on the market sentiment. European markets edged higher during the week. Market started the week on lower note in a holiday-shortened session. In spite of the weak end to the year, most of the investors expect further gains in 2011, fuelled by corporate balance sheet strength and government stimulus. Further, markets regained strength on hopes that Chinese measures to slowdown overheating economy may be working and investors cheered reports better than expected growth in Eurozone manufacturing sector and British manufacturing sector. Later, markets finished lower with miners and energy producers leading losses as a firm greenback pressurized commodity prices. Further, investors scaled back their trading positions ahead of Friday's widely-watched US non-farm payrolls data also weighed on sentiments. Also, investors were presented with another negative batch of economic data, which was played a vital role in sinking the mood of markets. | Weekly return on major Global Indices
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| Open Interest in Nifty Future vis-Ã -vis Nifty  Most Active Contracts  Put-Call Ratio  Volatility Index  FIIs Cumulative trailing 5 day's data
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FIIs & MFs investment in Debt Market
Bond Yield (7.80% CG 2020)
Spread  Liquidity Adjustment Facility
GoI borrowing Program - 2010-11
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Government borrowing calendar (Next four auctions)
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Inventories(Weekly Change)
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| Rupee ended the week lower against USD but it managed to edge higher against Euro and Yen. During the week, INR fell 1.25% against greenback as demand from oil importers, better US economic prospect and weaker stock market weakened domestic currency. Oil companies have increased demand for US dollar on concerns of any possible supply disruption from Iran amid a payment dispute between India and the Islamic Republic. Further, USD gained after better than expected US economic data including job sector reports. A weaker domestic share market also pulled the INR down. On the other hand, Rupee gained against Euro as common European currency dropped to a four-month low versus a broadly firmer dollar
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Bajaj Auto (Rs 1,317)
Encountering resistance at Rs 1,550, Bajaj Auto nose-dived 14.5 per cent last week. This decline was accompanied by high volumes. After recording an all-time high at Rs 1664 in late November, the stock changed direction and has been on medium-term downtrend.
Moreover, with the recent tumble, the stock has conclusively penetrated it's long-term up-trend line, which reinforces its bearish momentum. However, it is currently testing its 200-day moving average and is just above its immediate support at Rs 1275. A reversal from either levels can lift the stock higher to its immediate resistance level of Rs 1395 and then to Rs 1450. Inability to move above first resistance will drag the stock down to Rs 1200 and next key support at Rs 1100 in the medium-term. Strong move above Rs 1550 will mitigate the downtrend.
Jindal SAW (Rs 210.3)
Following a narrow sideways consolidation between Rs 180 and Rs 190 since late November, the stock broke out upwards last week by skyrocketing 15 per cent with good volumes. It has also breached significant resistance at Rs 200 and its 200-day moving average around Rs 205. The stock is testing key hurdle between Rs 215 and Rs 225, which is an intermediate-term resistance zone. An emphatic move beyond Rs 225 can take the stock higher to its January 2008 peak of Rs 240 to Rs 245 band in the medium-term.
On the other hand, failure to surpass Rs 225 can result in the stock declining to Rs 200 and then to Rs 190 or Rs 180.
K.S. Badri Narayanan
Dr. Reddy's Lab (Rs 1,669.7): The immediate and medium-term outlook turned negative for Dr. Reddy's Laboratories. The stock breached its crucial support in last week's carnage. As long as it stays below Rs 1,812, the outlook remains negative. The immediate support appears around Rs 1,656, breaching which the stock can reach Rs 1,506, which is a major support. A dip below 1,506 would change the outlook to negative. The immediate resistance appears around Rs 1,776.
F&O pointers: The Dr. Reddy's Lab futures closed at a discount with respect to the spot price. The counter has witnessed unwinding of long positions consistently throughout the week. Options are not active to discern any view.
Strategy: Consider going short on Dr. Reddy's Lab January futures with tight stop-loss at Rs 1,723 (closing day basis, spot price). Shift the stop-loss to Rs 1,656 once it dips below that level. Trail the stop-loss so as to protect profits. Market lot is 250 units.
Reliance Communications (Rs 139.3): The medium-term outlook RCom will turn positive only if it moves past Rs 185. The medium and short-term outlook are negative for the stock despite the recent turnaround. While the stock finds immediate resistance at Rs 153, the immediate support appears around Rs 131. A fall below the support could drag the stock below its 52-week low of Rs 120.
F&O pointers: The RCom Jan futures shed open interest on Friday, though it saw decent accumulations earlier in the week. Option trading presents a positive bias.
Strategy: Consider shorting RCom for a target of Rs 120 with a tight stop-loss at Rs 153 (spot price on a closing day basis). Market lot is 2000 units.
Asset management firms should offer investment solutions and not just products.
Asset management firms continue to offer standard investment products such as fixed maturity plans, equity funds and, now, passive products on foreign indices. Investors do not always understand how to effectively utilise these products to create an optimal portfolio. Most do not seek professional investment advice either. The question is: Can asset management firms bridge the knowledge gap and channel investor resources optimally?
This article explains why asset management firms should offer investment solutions and not just products. It also explains how such solutions can be structured to improve investment experience for the end-users.
Asset management firms typically look to improving customer base through product offerings. This has resulted in most firms offering similar repertoire — equity funds, bond funds and gold ETFs. The value differentiator is generally the fund performance, though the statutory warning suggests that "past is not an indicator for the future."
Yet, investors use past performance to choose a mutual fund. In the process, they do not actively choose alpha-generating funds and the alpha managers do not necessarily attract more investors.
Offering investment solutions could, perhaps, prove useful in several ways. For one, the differentiator would be the solutions offered, not the product. Though investment solutions can also be replicated, the offering need not be same.
Suppose an asset management firm were to offer a closed-end education fund that will enable investors pay for their child's education at 18. The firm may decide to have 70 per cent equity exposure, 20 per cent bond exposure and 10 per cent gold exposure with tactical range of 10 per cent.
Another asset management firm may have a different asset allocation strategy for the same investment solution. An investor's choice would depend on her preferred asset allocation, not just the fund performance.
For another, asset management firms may be able to attract even self-directed investors who may find such solutions useful. And for the investors who do not wish to pay for advisory services, such investment solutions could come cheap.
The question is: How should firms offer such investment solutions?
Portfolio structure
Consider the education portfolio. An asset management firm can offer such a solution either through direct asset exposure or through a fund-of-funds structure.
Direct exposure may be deviating from the traditional two asset-class (balanced) portfolio, as the fund will have to carry equity, bonds and, perhaps, gold. A fund-of-funds structure would be less complicated and more flexible- the fund will invest in equity funds, bond funds and Gold ETFs.
True, investors may have to incur additional costs for buying the investment solution — fund-of-funds fee of 50 basis points. But that would be a small price to pay for the manager selection skills of the fund-of-funds manager. This is, indeed, a valuable service for the investors who will otherwise find creating a portfolio of mutual funds a not-so-easy task.
There is a behavioural advantage too. The feeling of regret may be less when an investor buys mass investment solution from an asset management firm. Why?
A custom-tailored solution received from an investor advisor, though good, may sometimes not be enough. This is because the investor may feel that she could have done better by taking a more niche solution from another investment advisor. Choosing among several advisory service providers is not always easy. A mass investment solution helps, as the investor knows that her acquaintances also received the same solution as she did. Failing with the crowd, in the event the portfolio loses value, causes less regret.
Conclusion
There is a tremendous potential for asset management firms to offer mass investment solutions. Firms could use fund-of-funds route to offer solutions with even existing products.
Such offerings could provide cheaper solutions for retail investors and become a value differentiator for firms. Investment advisors could also use such products to custom-tailor portfolios for HNIs.
