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Strong & Weak futures for 16th March
This is list of 10 strong futures:
BRFL, Tata Motors, Mphasis, Amtek Auto, M&M, Century Textiles, Shree Cem, Grasim, Ster & National Alum.
And this is list of 10 Weak Futures:
Rolta, Aban, Indian Bank, Ranbaxy, Triveni, Syndicate Bank, MoserBaer, Yes Bank, Patel Eng & Gitanjali.
Nifty is in down Trend.
Weekly Index Outlook
Sensex (8756.6)
There was perceptible change in the market mood towards the end of last week as despair gave way to hope. Signs of a nascent economic recovery in India coupled with smart rebound in US markets made the bulls venture out of their lair and take the Sensex 412 points higher on Friday. The benchmark closed the week in relatively safety, above the 8500 mark.
Short sellers scrambling to cover their positions on the last two trading sessions were partially responsible for extending the rally on Friday. Volumes too were very high towards the weekend especially in the derivatives segment. FII outflows too abated, easing the pressure on our markets.
Sensex has averted a decline below 8000 yet again, bouncing off the trough at 8047 recorded on March 6. A closing low below 8000 has not been recorded since October 2005, and even on that instance, the index closed above 8000 the very next day. It may be recalled that even on October 27, 2008, Sensex closed above 8500 though the intraday low that day was 7697.
So we have a short-term rally in the Sensex and it is from a good support level. However, it is a trifle early to pronounce that a sustainable bottom has been formed in the index. The momentum indicators in the daily chart that are on the verge of moving in to the positive territory imply that the rally needs to extend a little more to mitigate the negative short-term outlook. In fact, last week's rally has had no impact on the weekly oscillators that continue in the bearish zone.
The key resistance level for Sensex in the short-term is between 9000 and 9200. If the index reverses lower from this zone, it would mean that the short-term outlook continues to be negative and the index can yet slide below the 8000 mark. But a close above 9200 would mean that a medium-term up trend is under way that can take the index to 9760 or 10820.
In e-wave terms, we have been assuming that the downtrend from the January 2008 had resumed in the second week of February. We will stay with this assumption as long as the Sensex stays below 9200. According to this count, this corrective rally will be followed by yet another leg down with the minimum target at 7700.
But a close above 9200 will imply that the sideways move from October 27 troughs is still in progress that will keep the Sensex vacillating between 8000 and 11000 for a few more months.
To put it in simpler terms, the current up-move cannot be taken seriously until it moves beyond 9200. Specific resistance levels for the week are at 9083, 9170 and 9543. Supports for the week would be at 8350 and 8040.
Nifty (2719.2)Nifty held above the support at 2502 last week and rebounded strongly on Friday to end the week up 3.7 per cent. As explained above while discussing the Sensex chart, the oscillators in the daily and weekly chart indicate that the Nifty needs to make a little more headway before the short-term outlook turns positive. Key near-term resistance for the index is at 2800. Presence of the 50-day moving average at this level adds to its significance.
Failure to move above 2800 will imply that the near-term outlook for Nifty stays negative and the index can reverse down to decline to 2500 or 2252. However, a close above 2800 will make the near-term view positive for Nifty. Such a move will indicate that the index can move higher to 3000 or 3250 over the medium-term.
Global CuesGlobal equities recovered after a slight wobble in the beginning of the week. DJIA recovered from an intra-week trough at 6516 to close with a whopping 9 per cent weekly gain. Next resistances would be at 7500 and 7831 for the index. Weekly close above 7500 would be the first signal that a sustainable up trend is developing in this index. Corresponding resistance in S&P 500 is at 780.
European indices such as the FTSE, CAC and DAX recovered from multi-year lows on Monday to close with weekly gains ranging between 6 to 8 per cent. It was a relatively muted performance by the Asian indices. The weekly gain in most Asian indices was under 5 per cent.
FII DATA| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 13-Mar-2009 | 2187.88 | 1888.65 | +299.23 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 13-Mar-2009 | 1076.65 | 683.97 | +392.68 |
Reliance Ind
RIL recorded a sharp up-move in the last two sessions that enabled it to gain 9 per cent last week. The bullish engulfing pattern in the weekly chart and the close above Rs 1,200 makes the short-term view neutral for the stock. Although a strong rally is currently under way, RIL faces resistance at Rs 1,300. Short-term traders should exercise caution as long as the stock trades below this level. If this level is breached, the rally can extend to Rs 1,375 or Rs 1,415.
Conversely, failure to move beyond Rs 1,300 would pull the stock down towards Rs 1,120 again. The medium-term view stays neutral or indecisive and sharp moves in either direction are possible as long as RIL is confined within the band between Rs 1,000 and Rs 1,500.
Maruti Suzuki
Maruti reversed strongly from the intra week trough at Rs 639 last week. The area around Rs 636 is a good near-term support since the 21 and 50-day moving averages are present there. Short-term traders can hold their long positions as long as the stock trades above this level. The support that medium term investors ought to watch is Rs 600. The near term view for the stock but fresh buying in advised only if it sustains above Rs 700.
The stock is currently unfolding the third leg of the move from December 2008 trough. Next target for this move is at Rs 777. In other words, if the stock stays above Rs 700 for the next couple of sessions it would move close to the upper boundary of the medium term trading range for Maruti.
Tata Steel
Tata Steel moved higher to Rs 167 as anticipated in our last column.
Key short-term resistance for the stock is in the band between Rs 184 and Rs 190.
A close beyond this band would imply that the stock can move on to Rs 219 or Rs 250 over the medium-term. Such a move would be construed as the third leg of the sideways correction that is on since December 2008.
Supports for the week ahead would be at Rs 155 and Rs 148.
Stock is still hovering close to the key medium-term support at Rs 148.
As explained last week, a rebound from Rs 148 can take the stock higher towards Rs 200 again.
But breach of this level will pull the stock to Rs 136 or Rs 109.
SBI 
It was a good fight-back in SBI after the capitulation witnessed in the previous week.
Though the stock declined to Rs 896 on Monday, the rally in the next two days made it end with marginal weekly gains.
However, a strong close above Rs 1,000 is required to make the short-term outlook positive for this stock.
Subsequent resistances are at Rs 1,051 and then Rs 1,085.
Short-term traders can initiate fresh shorts on a downward reversal below Rs 1,000; a fall to Rs 890 or Rs 855 then becomes possible.
But as we have been reiterating SBI has key long-term support at Rs 1,000 and long-term investors should accumulate the stock in the band between Rs 900 and Rs 1,000.
Infosys
The sharp rally recorded on Friday helped Infosys close the week with 6 per cent weekly gain. The stock reversed higher from the support at Rs 1,165 in line with our expectation and moved past our first target at Rs 1,260.
Target of the third leg of the move from Rs 1,065-trough occurs at Rs 1,306 and then Rs 1,406. Since the stock has key medium-term resistance at Rs 1,306, fresh purchases for short-term trading is advised only on a close above this level. Subsequent medium-term target is Rs 1,457.
However a downward reversal from Rs 1,300 level will pull the stock down to Rs 1,150 or Rs 1,100 again. We retain the medium-term range between Rs 1,000 and Rs 1,500 for this stock.
ONGC
ONGC moved contrary to our expectation, rallying strongly towards the resistance at Rs 700.
Though this up-move can continue to take the stock higher to Rs 730 or Rs 736, we advise caution until the resistance at Rs 736 is surpassed. Another downward reversal from this level can cause the stock to move down to Rs 670 or Rs 640 again.
ONGC has been moving in a range between Rs 620 and Rs 740 since last November. Since the long and intermediate term trend in the stock are down, it can be inferred that there can be another wave down that drags the stock to its October 2008 low at Rs 538.
A firm close above Rs 800 is needed to mitigate this bearish medium-term view.
Nifty futures likely to see sideways movement
Thanks to the positive global cues, the benchmark Nifty futures staged a strong recovery on Thursday and Friday. The uptrend was so strong that it led to the covering up of a good number of shorts, leaving the Nifty future to close at a marginal premium. After weeks of closing at a discount, this week the Nifty future closed at about 2720 points as against the Nifty spot's close of 2719 points, scoring a 4.3 per cent gain over its previous week's close. The recovery also saw a heavy turnover in the F&O segment; the average daily turnover topped the Rs 45,000-crore mark, way above the previous week's average figure of Rs 42,450 crore.
Follow-up
Last week we had advised traders to go short on Nifty future at 2550. However, traders may not have benefited much as the Nifty future opened last week in the 2575-85 range. But had traders held on to the shorts, hoping to reach the next target level of 2250, their stop-losses at 2680 would have been triggered.
Outlook
Thanks to the strong recovery in the last two trading sessions, the downtrend has got arrested, albeit only temporarily. The Nifty future now faces a strong resistance at 2750-80 and then at 2850-2900 levels. The current trend, if it holds well over the coming week too, has the potential to push up the Nifty future to these designated levels. That said, we feel that the Nifty future would find it difficult to convincingly cross the 2850 mark. Alternately, if the rally proves short-lived, Nifty future can weaken to 2550 first and then to 2250, as has been mentioned in this column before.
We expect the market to witness a sideways movement in a range of 2550-2850 this week. And the way it has been in the recent past, the Nifty future may continue to see heightened intra-day volatility.
Option monitorOptions' trading presents many interesting insights. While 2600, 2700 calls shed open interest positions, that at 2800 added more positions. On the put side, 2600, 2700 puts witnessed accumulations, but on the short side. Interestingly, 2200 strike saw sharp accumulations. It seems traders while writing (selling) puts in the current month series were also accumulating fresh positions in next month (April) series. Among the next month series, 2600, 2400 and 2700 strikes were the most active. Notably, April 2800 call was the most active, but here again, the activity appeared to be on the sell side.
Going by these trends in option trades, it appears 2800 could act as a strong resistance. However, overall it also points that the strong two-day rally in the market may only be short-lived as the negative sentiments are still rampant. Going by the trends in option trades, it appears 2800 could act as a strong resistance.
Volatility IndexIndia VIX or Volatility Index, which measures the immediate expected volatility, has weakened further to 35.57 - the second lowest level since January 23 in 2009 - from the previous week's level of 37.94. The fall suggests that panic has been considerably reduced, and that the Nifty may not see a sharp fall in single day.
Recommendations
We advice traders to adopt the following strategy.
Consider a short straddle using 2700 strike. This strategy is best suited only when one believes that the market might move in a narrow band. You can set the spread by selling 2700 call and put (March), which ended on Friday at a premium of Rs 71.75 and Rs 56.3 respectively. While the maximum profit in this strategy would be limited to the premium collected (Rs 128/contract in this case), the loss however can be unlimited.
FII trendThe cumulative FII positions as a percentage of the total gross market position on the derivative segment as on March 12 improved to 37.16 The FIIs were predominantly net buyers in the F&O segment last week.
They now hold index futures worth Rs 7,710 crore and stock futures worth Rs 12,701 crore.
Global influence still strong
| Indian Markets. |
Given the continuing correlation with the US market, a recovery there may be a precondition to any sustained improvement in Indian stocks.
"BSE Sensex tumbles to a three-year low." "Dow Jones Industrial Average at a new 12-year trough". Do these headlines suggest that the Indian stock market is more resilient than the US? Or is it a hint that the two historically close-knit markets are moving away from each other? Actually, neither is the case.
Indian stocks have sharply underperformed US equities since the Lehman Brothers collapse. As US equities started sliding much earlier and didn't see as strong gains as did India in the pre-Lehman phase, the current fall has taken them to a fresh 12-year low.
Though day-to-day swings in the Sensex may suggest otherwise, the correlation between the Indian market and its global counterparts has only strengthened in recent times. Even as the US market continues to wield a fairly strong influence on Indian stock movements, correlation analysis shows that the market's linkage with other emerging markets (EMs) is also on the rise. This article traces the returns generated by the Indian market relative to other key groups and trends in correlation, over the past two years.
The 2007 rallyThe period before the Lehman collapse saw the Indian markets actually "decouple" from US and even outperform other EMs. This was a period when Indian stocks showed a strong correlation with EMs and other BRICs, with tenuous linkages to US markets.
In return terms, between January 2007 and January 2008, the MSCI India index (30 per cent gain) outperformed the Emerging Market (17.5 per cent) index by a wide margin and almost matched the MSCI BRIC Index (30 per cent). That was supported by 9 per cent plus GDP growth and sustained strong earnings growth from India Inc through the year, which supported the notion that the economy would be relatively immune to the US sub-prime crisis.
A better currency equation also aided FII inflows of $1400 million in this period. FIIs earned better returns than domestic investors as the rupee strengthened from 44 to a dollar at the beginning of 2007 to 39 in January 2008. During this phase, the negative growth outlook in other developed markets on sub-prime related worries, pushed hedge funds and other global investors to invest more in emerging markets such as India, China and Brazil.
Though the MSCI EM index underperformed MSCI India, the two indices still displayed a high correlation of 0.88. This phase also saw the Indian markets' correlation with the BRICs at a high of 0.95. Correlation with US markets was at an insignificant 0.08. Clearly, the EMs exercised far more influence on Indian stock market movements than the US.
The tide turns: US influence creeps upBut that situation changed substantially in the period after the US housing market problems started in February 2008. As concerns about the US economy slipping into recession resulted in rising risk aversion among global investors, funds actually began fleeing back to the home country — mainly the US!
Runaway commodity prices and rising inflation were both seen as big negative for oil importers and developing nations such as India, and outflows from global emerging market funds began in the right earnest. From February, until the Lehman Brothers collapse in September 2008, the correlation between India and the US moved up to 0.8, even as that between India and the BRICs remained strong, at 0.72.
The MSCI India Index plunged 30 per cent between February 2008 and September 2008 and was among the worst performers in the EM and BRIC pack. The MSCI Emerging Markets index was down by 28 per cent in this phase. The US, the epicentre of the crisis, however, escaped with a lower 15 per cent loss.
Domestically, as high commodity prices and tightening credit markets began to leave their imprint on Indian companies, the first signs of slower earnings became apparent in the December 2007 quarterly results. Nearly a third of 1,500 listed companies saw a decline in earnings in the last quarter of 2007. On an average, profit growth was 19 per cent, year-on-year, but slowed to 3 per cent on a sequential basis. The Budget's Rs 60,000-crore farm loan waiver was also not well-received by the market.
Indian stocks turned out to be particularly vulnerable to increasing risk aversion because of the market's dependence on FII flows and vulnerability to high oil prices (given the mounting trade deficit). A weakening currency added to the equation to make this a particularly bad vicious cycle for FIIs, which saw the value of their residual holdings battered even as they pulled out funds. FIIs withdrew a total of $5,889 million between February 2008 and September 2008.
India fares better as commodities melt
The bursting of the commodity bubble in July-August 2008, however, turned the tables for EMs that rely to a larger extent on commodities or natural resources for wealth generation. As the Reuters CRB commodity index plunged 27 per cent from its highs in September 2008 and hit pre-2007 levels in end-December 2008, the MSCI country indices for Russia, Brazil and China plummeted 51 per cent, 38 per cent and 11 per cent respectively. The US markets too fell by a sizeable 23 per cent.
India, however, fared better than some of the above markets between October and December 2008, the MSCI India Index shedding 27 per cent (the MSCI Emerging Markets index plunged 37 per cent). As the impact of higher input costs and interest rates both hit India Inc, corporate results took a turn for the worse in the December 2008 quarter.
Back to square one?With a relatively stable currency (the recent depreciation notwithstanding), Indian stocks have, for the first time since this bear phase, outperformed US markets in 2009. The MSCI India Index has lost 15 per cent so far in 2009, against the 20 per cent fall in the MSCI US.
However, with higher commodity prices favouring other countries in the BRIC group more than India, the latter has not been among the out-performers in the BRIC pack. Against the MSCI India index's losses of 15 per cent this year, Russia is down a mere 2 per cent and Brazil only 5 per cent. Even China has fared better, with a 10 per cent decline.
India has marginally lagged the MSCI Emerging Markets index, down by a comparatively low 14 per cent this year. Worries about the domestic slowdown engulfing both export and manufacturing sectors, fears of eroding consumer confidence as some sectors gear up to job losses and poor earnings expectations have contributed to a more sedate picture for Indian stocks.
However, one fact to be noted is that in 2009, even as India slipped back to underperformance, the correlation between the Indian markets and the US as well as the EM pack has remained fairly strong, at 0.86 and 0.89 respectively. Recent reversals in the EM stocks have been triggered by outflows from emerging market and Asia-specific funds; India, too, has faced a fresh bout of selling pressure from FIIs.
So, what do historical trends in returns and correlation suggest for the future? They indicate that three factors probably need to be in place for an Indian stock market recovery:
One, given the continuing correlation with US markets, their recovery may be a precondition to any sustained recovery in Indian stocks.
Two, if India is still regarded just as a member of the EM pack, the worsening economic news from Asia may queer the pitch for fund flows into the country as well. The Indian economy may be less prone to an export-led slowdown than some other Asian countries, but given that crucial job-creating sectors such as IT, BPO and textiles are export-led, it is now sinking in that the domestic consumer or investor isn't particularly immune to the global recession, as thought earlier.
Finally, though the rupee has fared much better than a few other Asian currencies so far in 2009, the swings in the currency in the months ahead may once again influence the direction of FII flows
NIFTY & SENSEX SPOT LEVELS FOR 16TH MARCH
 | 2719.25 | ( 3.89 %) | 101.80 |  |
| 1 | 2 | 3 | ||
| Resistance | 2758.07 | 2796.88 | 2867.62 | |
| Support | 2648.52 | 2577.78 | 2538.97 | |
 | 8756.61 | ( 4.95 %) | 412.86 | | |
| 1 | 2 | 3 | |||
| Resistance | 8872.97 | 8989.32 | 9185.44 | ||
| Support | 8560.50 | 8364.38 | 8248.03 | ||
Falling volatility indicates lower fear factor
Continuing bad news from overseas and on the economy has made investors wary and reluctant to buy on market declines. This apathy is leading to prices declining with relatively low volatility.
Volatility tends to increase sharply when stock prices start moving lower.
Market observers should be surprised by the composure of the market participants in January and February this year even as the stock prices were slipping and sliding.
To put it in 'technical' terminology, the volatility in our markets was much lower in the first two months of 2009 when compared with the same period last year.
Intra-day dips The mean of the intraday volatility distribution of the CNX-500 in January 2008 was 3.9 per cent, while it was a more sedate 2.6 per cent this year. Similarly, in February 2008 this parameter was 2.5 per cent, while it was at 1.8 per cent in the same month this year.
The standard deviation of the intraday volatility distribution in January this year was almost half, at 1.5 per cent, when compared with 3.2 per cent in January 2008.
Volatility is measured through the magnitude and the rate of change in stock prices/indices in a given time period.
While historical volatility captures the price changes over a number of trading sessions and implied volatility reflects the expected volatility using options prices, intraday volatility captures the intraday price movement in indices and stocks.
Volatility tends to increase sharply when stock prices start moving lower. On the other hand in a raging bull market, price swings are less. This can be explained by the fact that investors generally lose the ability to think and act rationally while in a state of panic. Fall in stock prices tends to get exaggerated in such periods due to rising impact costs as buyers move away.
Less fear The fact that investor fear levels are low this year is corroborated by the historical volatility (HV) data computed by Bloomberg, in both the CNX-500 and the Nifty. The 30-day historical volatility that measures the standard deviation of the closing prices over a 30-day period is currently at 27 for the CNX-500 index. This is close to the lower end of the range recorded between January 2008 and March 2009. The peak HV for CNX-500 in this period was at 71.8. Thirty-day HV for the Nifty is currently at 30, after peaking at 78 last November.
India VIX, the volatility index that measures the expected market volatility over the next 30 days by using Nifty option premiums, is currently at 35, implying that investors are quietly watching the market and not exactly rushing towards the exit door. The November 2008 peak in this index was at 92.
Why so? So, what is the reason behind the lower volatility witnessed this year? Market experts feel that the relentless onslaught of bad news from overseas and on the economy front has made investors wary.
Buyers are reluctant to utilise declines to buy as they are expecting another downward leg in the market. Investor apathy is leading to prices declining with relatively low volatility.
It is not just Indian investors who have increased their tolerance to tumbling stock prices and negative news. Investors across the globe are displaying a similar attitude. The volatility index traded on the Chicago Board of Options Exchange, the CBOE VIX, that calculates the expected market volatility based on S&P 500 options, is the most popular global gauge for measuring panic levels in equities.
This index currently trades around 42, much below the peak of 89 recorded last October. It, however, needs to be added that the index trades much below 30 in periods of relative calm in stock markets.
Periods of heightened volatility have typically been accompanied by increased selling by foreign institutional investors (FIIs). Intraday volatility in CNX-500 averaged at 5 per cent in October 2008, when FIIs net sold $3.8 billion. This was the period in which hedge funds sold stocks blindly to meet redemption pressure.
Price swings during the trading day were also high in January 2008 at 3.9, when FIIs net sold $3.2 billion. Again, there has been a marked spike in intraday price fluctuations in the first week of March 2009 that coincides with accelerated selling by foreign institutions.
It is perhaps because the FIIs have larger stakes in large-cap stocks that make up the Nifty basket that the Nifty typically registers higher intraday volatility when compared with the CNX-500, which is more broad-based and includes mid- and small-cap stocks too.
The higher liquidity in large-cap stocks also contributes to greater volatility in these stocks. This difference is accentuated in days of high intraday volatility such as January 22 and October 24, 2008 when trading was halted as the Sensex hit the first circuit filter, down 10 per cent. While CNX-500 recorded intraday volatility of 11.6 and 11.8 on those two days, the fluctuation in Nifty was far higher at 15.6 and 15.
Stock-specific swingsHow has intraday volatility in bellwether stocks in the Indian stock market been between January 2008 and now?
There is a marked abatement in price swings in the first two months of this year, against similar periods last year, in stocks such as Infosys Technologies. The poor outlook for the sector due to the ongoing recession and shrinking IT budgets of clients could have resulted in reduced investor interest in this stock.
Though State Bank of India and BHEL retained investor fancy in 2009 due to relatively attractive valuation when compared to a year ago, intraday volatility was less in January and February 2009, compared to the same months the previous year. This could be partly due to the cautious attitude adopted by investors.
Reliance Industries, however, experienced heightened intraday swings in January 2009. The mean intraday volatility in January was increased by the over-15 per cent swings experienced on January 7 — the day the Satyam scam was revealed — and on January 23, following RIL's quarterly earnings announcement.
Stocks in the realty sector that fell over 90 per cent from their January 2008 peaks have become trading favourites in 2009 and have consequentially experienced greater intraday volatility this year.
DLF, whose average intraday volatility percentage in January and February 2009 was 11.2 and 9.2, is a case in point.
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Arvind Parekh
+ 91 98432 32381
