Weekly Index Outlook 22rd-27th March 2009

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Weekly Index Outlook

Sensex (8966.7)
The strong rally that made Sensex surge past 8500 in the previous week petered off around 9000. Indian stocks jived to overseas cues in the absence of any market-moving development in the country. The week was marked by inexplicable rallies in some of the beaten-down stocks in the mid and small-cap segments.

Volumes were high in both cash and derivative segment as the desire to buy 'close to the bottom', lured both investors and traders in to the markets. FIIs were net buyers in cash last week though the net outflow for March remains at $320 million. The expiry of the March contracts in the derivative segment will dominate the trading next week. Since short positions are piling higher by the day, the current rally can get a leg-up if the short-sellers are forced to square their positions.

Sensex struggled to move above the 9000-mark in the last three sessions. However there has not been a sharp sell-off from this resistance either. The three stars formed in the second half of the week in the daily candlestick chart aptly reflect the tug-of-war that is currently on between the bulls and bears. Daily momentum indicators are moving sideways just above the neutral zone while weekly indicators continue in the negative zone. The implication is that the short-term outlook is indecisive while the medium-term view continues to be negative.

We had indicated in this column last week that the rally cannot be taken seriously unless Sensex moves above 9200. There is no alteration in this view. The 50-day simple moving average present here coupled with key Fibonacci retracement resistance makes it a resistance that is not easy to overcome. If Sensex manages to rally above this level, the rally could extend to the band between 9800 and 9900 over the medium term. It may be recalled that the medium-term range for the index is between 8000 and 11000. On the other hand, inability to climb above 9200 would imply that bears continue to have the upper hand and they can yet engineer a decline to 8000 or below.

In short, we continue our vigil at the 9200 mark this week as well. If the correction continues, the supports will be at 8710 and 8456. Short-term investors can hold their long positions as long as the index stays above the first support. Resistances for the week would be at 9120 and then 9530.

Nifty (2807)

Nifty struggled with the psychological resistance at 2800 last week; reversing from an intra-week peak at 2836. But the correction so far has been extremely mild and the index has been meandering in a narrow band between 2770 and 2820 in the last two sessions. Traders need to exercise caution until the index records a strong move above 2800. For a reversal from here will cause a medium term decline to 2570 or lower. Short-term supports for the index are at 2720 and 2660. Stop-loss for long positions ought to be at 2700.

A strong move above 2800, on the other hand, will take the index to 2946 or 3054 in the near-term. Fresh long positions should therefore be initiated only on a strong move beyond 2820. It however needs to be remembered that a run-away rally is not likely in the Nifty yet since the medium-term ceiling for the index could be at 3000 or 3200.

Global Cues
It was a less exuberant show by global equities though most indices managed to hold on to the gains recorded in the previous week. Dow Jones Industrial Average stuttered at the first resistance around 7500. The November 2008 trough at 7506 and the 50-day moving average present at the same level makes it a key hurdle from a long-term perspective as well. The magnitude of the current pull-back will give us clues to help us gauge if a sustainable low is in place for the Dow. Short-term support to watch is at 6850. Interestingly, the S&P 500 is well above the November 2008 trough at 741. A decline below this level will be a victory for the bears. Commodity prices soared higher on Thursday as the dollar fell off the pedestal. CRB index traded on NYFE closed with a weekly gain of 5 per cent. —
Strong & Weak futures
This is list of 10 strong futures:
BRFL, Bata India, Ster, Finan Tech, KPIT, Hind Zinc, Matrix Labs, Hindalco, GMR Infra & JP Associates.

And this is list of 10 Weak Futures:
Alok Text, Rolta, Indian Bank, Ranbaxy, Hind Petro, Triveni, BPCL, Allahabad Bank, Moser Baer & Yes Bank.
Nifty is in Up Trend.

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	20-Mar-2009	1108.73	1257.91	-149.18

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	20-Mar-2009	600.9	694.93	-94.03

Infosys

This stock hovered uneasily around the key resistance at Rs 1,300 last week. As indicated in our last column, Infosys has strong resistance around Rs 1,300 and a downward reversal from here can pull the stock down to Rs 1,220 or Rs 1,160. Conversely, a close above Rs 1,320 will take the stock to the next medium-term target at Rs 1,457. Short-term traders should therefore wait for a close above Rs 1,320 before initiating fresh long positions.

The area between Rs 1,450 and Rs 1,500 is the key medium-term resistance zone for Infosys. The November peak at Rs 1,457 and the 200-day moving average at the same level make it a strong obstacle. The medium-term range for Infosys stays between Rs 1,000 and Rs 1,500.

ONGC

ONGC struggled with the resistance at Rs 736 in the first four sessions of the week but the strong rally on Friday has taken it beyond this hurdle. Targets for the move from the March 6 trough are Rs 750 and Rs 818. Since the November peak was also at Rs 810, this level is the next target for the stock. However, short-term investors should book partial profits around this level. Supports for the week ahead are at Rs 690 and Rs 645.

The resistance at Rs 800 is also very important from a medium-term perspective since the medium-term range for the stock is between Rs 600 and Rs 800. A firm close above Rs 800 will make the medium-term view positive and pave the way for a rally to Rs 867 or Rs 950.

Maruti Suzuki

Maruti Suzuki moved sideways with a positive bias between Rs 690 and Rs 735 last week.

The doji formation in the weekly chart however denotes indecision and that the bulls and bears are evenly matched at these levels. As indicated last week, if the stock manages to hold above Rs 700, it can rally to the zone between Rs 750 and Rs 777.

The area around Rs 750 is also a key resistance from a medium-term perspective. If this level is crossed, subsequent targets are Rs 850 and Rs 950.

Conversely, downward reversal from here can pull the stock to Rs 500 again. Investors with a short-term horizon should therefore book partial profit around Rs 750.

SBI

SBI could not move beyond the resistance at Rs 1,000 and declined from an intra-week peak at Rs 998 instead.

The short-term view will turn positive only if the stock records a strong close above Rs 1,000.

Else, it will move in the range between Rs 900 and Rs 1,000 for a few weeks. Short-term supports are at Rs 936 and Rs 890. Short-term traders can continue to sell on rallies with a stop at Rs 1,000.

The medium-term outlook for SBI is negative since it is currently trading below the long-term support at Rs 1,000.

Failure to move above this level over the next two weeks will imply an impending decline to Rs 790 or Rs 750 over the medium-term.

Tata Steel

Tata Steel reversed lower from an intra week peak at Rs 181. As explained last week, there is a short-term resistance band between Rs 184 and Rs 190. If the stock is unable to move past this band next week, it will imply that the near-term view is negative and a move lower to Rs 161 or Rs 146 can follow. Short-term traders can initiate fresh shorts on a downward reversal from this resistance band with a stop at Rs 192.

The medium-term trend in the stock continues to be sideways in the band between Rs 150 and Rs 250. The stock needs to record a strong close above Rs 190 to indicate that it is heading towards the upper boundary of the medium-term range at Rs 250.

Reliance

Reliance Industries moved past the resistance at Rs 1,300 to record an intra-week peak at Rs 1,354.

The stock has been vacillating between Rs 1,100 and Rs 1,400 since November 2008 while it is forming a symmetrical triangle. If the up-move since March 6 is part of this pattern, it can reverse lower from the band between Rs 1,370 and Rs 1,400 again and move lower to Rs 1,100. Rally beyond Rs 1,400 will give the next medium-term target at Rs 1,500.

Three consecutive stars in the daily candlestick chart imply that the stock is facing resistance around Rs 1,350. Fresh longs are advised only above Rs 1,400. Supports for the week would be at Rs 1,270 and Rs 1,250.

NIFTY & SENSEX SPOT LEVELS FOR 23rd March

	2807.05	( 0.00 %)	-0.10
		1	2	3
Resistance		2824.22	2841.38	2866.67
Support		2781.77	2756.48	2739.32

	8966.68		( -0.39 %)	-35.07
			1	2	3
Resistance			9022.06	9077.45	9154.91
Support			8889.21	8811.75	8756.36

Nifty future may see downward drift

Nifty future managed to sustain its momentum of last week as it managed to close around the 2800-mark.

It ended the week at 2798 points, registering a gain of 2.8 per cent over its previous week's close.

But contrary to the premium (over the spot) at which it closed last week, it closed the week gone by at a slight discount to the Nifty spot.

The Nifty spot closed at 2808 points. This relative poor show by Nifty future, particularly during the later part of week may be attributed to the lack of follow-up buying.

Rollover of positions however has been quite healthy this time around.

For that matter, the rollovers started earlier this time than what has been the case in the last three-four months.

Nifty rollover was pegged at about 34 per cent and was mostly on the long side.

As for individual stocks, it was stocks in the metal pack such as Hindalco, Sesa Goa, SAIL and Tata Steel that saw a sharp accumulation in next month series.

Follow-up

We had advised traders to consider short straddle using 2700-strike. Considering the opening (on Monday) and closing (on Friday) prices, the strategy has ended on a slightly negative note.

Outlook

The Nifty future appears critically placed now. As has been written earlier, it faces a strong resistance at 2850-2875 levels, breaching which its next resistance is placed at 2950-2975 levels. On the other hand, if Nifty futures weakens from the current level, it is likely to find support at 2750 first and then 2680 levels. That said, we expect the Nifty future to open on a calm note on Monday and weaken going forward. Any excessive selling in the market may also take the Nifty future to 2550 though in between it has support at 2750 and 2680.

Option monitor

Options' trading presents a positive bias for the market. The April 2800, 3000 and 2900 calls were the most active and saw accumulation in long open positions last week.

Among the puts, 2600, 2700 and 2800 in April series were the most active, but they added short positions, indicating that Nifty could face strong support at every dip.

Volatility Index

India VIX or Volatility Index, which measures the immediate expected volatility, weakened further to 34.86 (35.57) - the second lowest level since January 23, 2009. This fall points at a positive bias for the market, indicating that a significant plunge in Nifty future may be rather remote.

Recommendations

For the coming week, we suggest traders the following strategy.

Consider going short on Nifty future if the market opens on a calm note on Monday. You can then keep a stop-loss at 2850; but remember to adjust the stop-loss progressively. If Nifty future fails to pierce 2750, it has the potential to bounce back to 2950. So, this strategy is only for traders who can stomach high risk. Besides, since the coming week is also the settlement week for the current month derivative contract, traders may also have to brace themselves for heightened volatility in the market.

FII trends

The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on March 19, declined to 35.68 per cent. They were predominantly net buyers in the F&O segment last week. They now hold index futures worth about Rs 8,239 crore (about Rs 7,710 crore) and stock futures worth about Rs 14,108 crore (about Rs 12,701 crore). Their index options jumped to about Rs 25,066 crore (about Rs 21,033 crore).

Star candlestick patterns

Star patterns in Japanese candlesticks are single-candle formation that look like the twinkling stars that we all are familiar with. Stars have small real bodies and they gap away from the previous candlesticks. In other words, the star candlestick's real-body does not overlap that of the previous candlestick. This gives rise to the illusion that these small-bodied candles are floating in the sky.

The candlestick stars can be either white (bullish) or black (bearish) in colour. Stars taken in isolation do not have too great a significance. They imply indecisiveness; that the investors are beginning to doubt the strength of the prevailing trend. A long white or dark-bodied candlestick typically occurs before the star candlestick. These stars combine with other candles to form various candlestick patterns such as morning star, evening star, doji star and shooting star. A look at the morning and evening star candlestick patterns.

Morning star: This is a three-candle reversal setup. Morning star is a bottom reversal pattern, bullish in nature. The pattern occurs after at the end of the downtrend. The first candle is a long dark real-body and the second is the star signalling uncertainty. The third candle is a real white one that covers at least half of the first candle. These three candles do not overlap on each other. Refer to the daily chart of GVK Power and Infrastructure for morning star candlestick pattern. From Rs 21, the stock tumbled to Rs 12. After a long dark candlestick around this level, the stock gaps down shaping a star. The bulls take control later on and the stock reverses direction. The uptrend of the stock continues to Rs 25.

Evening star: It is a top reversal three candle pattern, which is a bearish reversal. This pattern happens after a continued uptrend. The first candle is long white real-body and the second is the star, indicating indecisiveness. While the third candle is a real dark candle that eats al least half of the first candlestick. The three candles do not overlap on each other. Infosys illustrates evening star candlestick pattern.

Following an upmove from Rs 1,300 to Rs 2,000 (from March to June 2008), the stock formed an evening star candlestick pattern. One can observe that after a long white candlestick, the stock gapped up next session forming a small real-body (star). Subsequently, the stock changed its trend, completing the evening star pattern.

--

Arvind Parekh

Phone:+91 98432 32381

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Market Outlook for 20th March

Trading Calls 20th Mar 2009
+ve Sector/scripts : IT, CNXMidcap, Bombaydye, Matrixlab, Indiabulls,
IBRealest
USE STRICT Stop Loss for todays trading
BUY OFSS-693 for the target 710 with stop loss 686

BUY KotakBank-269 for the target 278 with stop loss 265
BUY Bankindia-203 for the target 210 with stop loss 200

Short Relcap-318 for the target 290 with stop loss 326
Short Cipla-178 for the target 174-170 with stop loss 181

 

NIFTY FUTURES (F & O)
  Support at 2777 & 2791 levels. Below these levels, expect profit booking up to 2752-2754 zone and thereafter slide may continue up to 2738-2740 zone by non-stop.

Hurdle at 2819-2821 zone. Above this zone, rally may continue up to 2826 level and thereafter expect a jump up to 2841-2843 zone by non-stop.

Cross above 2848-2850 zone, it can zoom up to 2870-2872 zone and supply expected at around this zone and have caution.

On Negative Side, rebound expected at around 2730-2732 zone. Stop Loss at 2716-2718 zone.
  
Short-Term Investors:  
 Bullish Trend. 3 closes above 2728 level, it can zoom up to 2932 level by non-stop.
  
BSE SENSEX  
  Traders can expect profit booking.
  
Short-Term Investors:  
 Short-Term trend is Bullish and target at around 9439 level on upper side.

Maintain a Stop Loss at 8802 level for your long positions too.
 

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

Tulip, BRFL, KPIT, Jet Airways, Matrix Labs, Ster, Sasken, NIIT, Hind Zinc & Tata Motors.

And this is list of 10  Weak Futures:

Rolta, Alok Text, Ranbaxy, Indian Bank, Network 18, Allahabad Bank, Can Bank, Orient Bank, Triveni & IOC.
  Nifty is in Up Trend.

 

 

GLOBAL CUES & RUPEE

The Dow Jones Industrial Average closed at 7,400.80. Down by 85.78 points.

The Broader S&P 500 closed at 784.04. Down by 10.31 points.

The Nasdaq Composite Index closed at 1,483.48. Down by 7.74 points.

The partially convertible rupee <INR=IN> ended at 50.3650/3850, stronger than
from Wednesday's close of 51.29/30.

 

+ve to Market : 1. FII Buing 2. Inflation 3. Advance Tax collection

-ve to Market: 1. Expecting the YOY result from big boys will not meet
the market and DS expectation 2. There is no positive news will come
from Govt. [because of the announcement of the Election date] 3.
International market condition also will not boost the Indian market
4.  Mutual fund's redemption pressure for the year 2009 March. 5. DII
selling 6. US Market 7. SGX nifty 8. Gold fluctuation 9. Rs.Vs$

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 19th March

Trading Calls 19th Mar 2009
USE STRICT Stop Loss for todays trading
BUY BHEL-1459 above 1462 for 1479 with sl 1455
BUY ONGC-723 for 738 with sl 717

BUY GAIL-221 for 230 with sl 218
BUY BEML-379 for 400 with sl 372

 

NIFTY FUTURES (F & O)
  Above 2788-2790 zone, rally may continue up to 2796 level and thereafter expect a jump up to 2812-2814 zone by non-stop.

Support at 2761 & 2770 levels. Below these levels, expect profit booking up to 2737-2739 zone and thereafter slide may continue up to 2715-2717 zone by non-stop.

Buy if touches 2707-2709 zone. Stop Loss at 2685-2687 zone.

On Positive Side, cross above 2818-2820 zone it can zoom up to 2840-2842 zone and if crosses & sustains at above this zone then uptrend may continue.
  
Short-Term Investors:  
 Bullish Trend. 3 closes above 2531 level, it can zoom up to 2913 level by non-stop.
 

BSE SENSEX   
 False signal is likely. Traders can expect rally further.
  
Short-Term Investors: 
  Short-Term trend is Bullish and target at around 9476 level on upper side.

Maintain a Stop Loss at 8110 level for your long positions too.
  

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

BRFL, KPIT, Tulip, Tata Motors, Jet Airways, Matrix Labs, Biocon, Edu Comp, Ster & JP Associates.

 

And this is list of 10  Weak Futures:

Rolta, Alok Text, Ranbaxy, Indian Bank, J&K Bank, IOC, Allahabad Bank, Network 18, Triveni & BPCL.
 Nifty is in Down Trend.

 

GLOBAL CUES & RUPEE

The Dow Jones Industrial Average closed at 7,486.58. Up by 90.88 points.

The Broader S&P 500 closed at 794.35. Up by 16.23 points.

The Nasdaq Composite Index closed at 1,491.22. Up by 29.11 points.

The partially convertible rupee <INR=IN> ended at 51.29/30 per dollar on yesterday, above Tuesday's close of 51.47/4850

METAL INDEX Stocks May Zoom

 

NIFTY & SENSEX SPOT LEVELS TODAY

	2794.70	( 1.35 %)	37.25
		1	2	3
Resistance		2836.42	2878.13	2920.22
Support		2752.62	2710.53	2668.82

 

	8976.68		( 1.27 %)	112.86
			1	2	3
Resistance			9080.99	9185.29	9250.13
Support			8911.85	8847.01	8742.71

+ve to Market : 1. US Market 2. SGX Nifty 3. Asian Market [Mixed with
+ve bias] 4. FII Buying

-ve to Market: 1. Expecting the YOY result from big boys will not meet
the market and DS expectation 2. There is no positive news will come
from Govt. [because of the announcement of the Election date] 3.
International market condition also will not boost the Indian market
4.  Mutual fund's redemption pressure for the year 2009 March. 5. DII
selling 

 

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	18-Mar-2009	1719.9	1497.76	222.14

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	18-Mar-2009	1189.44	663.1	526.34

 

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 18th March 2009

Trading Calls 18th Mar 2009
+ve Sector/scripts : Glenmark, SRF
USE STRICT Stop Loss for todays trading
BUY Cromptgreav-135 above 138 for 149 with sl 134
BUY GMRinfra-82 above 83.5 for 89 with sl 81

BUY AxisBank-325 above 330 for 345 with sl 325
BUY ITC-173 above 175 for 180 with sl 173

BUY MCdowell-N-707 for 735 with sl 694 [Breakout call]

 

 

 NIFTY FUTURES (F & O)
  Above 2776 level, expect short covering up to 2804-2806 zone and thereafter expect a jump up to 2823-2825 zone by non-stop.

Support at 2737 & 2742 levels. Below these levels, selling may continue up to 2726-2728 zone and thereafter slide may continue up to 2707-2709 zone by non-stop.

Buy if touches 2697-2699 zone. Stop Loss at 2679-2681 zone.

On Positive Side, cross above 2833-2835 zone it can zoom up to 2851-2853 zone and supply expected at around this zone and have caution.
  
Short-Term Investors: 
 Bullish Trend. 3 closes above 2531 level, it can zoom up to 2913 level by non-stop.
  
BSE SENSEX  
 Traders can expect profit booking.
 

Short-Term Investors: 
 Short-Term trend is Bullish and target at around 9476 level on upper side.

Maintain a Stop Loss at 8110 level for your long positions too.
 

 

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

BRFL, M&M, Tata Motors, Matrix Labs, Ster, Mphasis, National Alum, Edu Comp, Biocon & Bharat Forge.

And this is list of 10  Weak Futures:

Rolta, Ranbaxy, Triveni, Alok Text, Aban, A Birla Nuvo, EKC, HTMT Global, Yes Bank & IOB.
 Nifty is in Down Trend.

 

GLOBAL CUES & RUPEE

The Dow Jones Industrial Average closed at 7,395.70. Up by 178.73 points.

The Broader S&P 500 closed at 778.12. Up by 24.23 points.

The Nasdaq Composite Index closed at 1,462.11. Up by 58.09 points.

The partially convertible rupee ended at 51.4700/4850 per dollar on yesterday, weaker than Monday's close of 51.385/395.

AUTO INDEX Stocks May Zoom

 

+ve to Market : 1. US Market 2. SGX Nifty 3. Asian Market [Mixed with
+ve bias] 4. FII Buying

-ve to Market: 1. Expecting the YOY result from big boys will not meet
the market and DS expectation 2. There is no positive news will come
from Govt. [because of the announcement of the Election date] 3.
International market condition also will not boost the Indian market
4. FII's continuous selling in the Indian/International market. 5.
Mutual fund's redemption pressure for the year 2009 March.

 

NIFTY & SENSEX SPOT LEVELS TODAY

	2757.45	( -0.71 %)	-19.80
		1	2	3
Resistance		2795.80	2834.15	2862.70
Support		2728.90	2700.35	2662.00

	8863.82		( -0.89 %)	-79.72
			1	2	3
Resistance			8991.36	9118.91	9213.69
Support			8769.03	8674.25	8546.70

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	17-Mar-2009	1602.29	1187.17	+415.12

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	17-Mar-2009	657.66	810.36	-152.7

 

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 17th March 2009

Trading Calls 17th Mar 2009
USE STRICT Stop Loss for todays trading
BUY Jindalstl-1086 above 1100 for 1155 with sl 1086
BUY Jpassociat-77 above 79 for 85 with sl 77

BUY SBI-987 above 992 for 1020 with sl 985
BUY Essaroil-73 above 75 for 82 with sl 73

Short Sunpharma-999 below 990 for 960 with sl 1000
Short HDFCBank-844 for 830 with sl 850

 

NIFTY FUTURES (F & O)
  Below 2749 level, expect profit booking up to 2716-2718 zone and thereafter slide may continue up to 2685-2687 zone by non-stop.

Hurdle at 2784 level. Above this level, rally may continue up to 2790-2792 zone by non-stop.

Cross above 2821-2823 zone, it can zoom up to 2852-2854 zone and supply expected at around this zone and have caution.

On Negative Side, rebound expected at around 2654-2656 zone. Stop Loss at 2623-2625 zone.

  
Short-Term Investors:  
 Bullish Trend. 3 closes above 2531 level, it can zoom up to 2913 level by non-stop.
 

BSE SENSEX  
  Traders can expect rebound.
  
Short-Term Investors:  
 Short-Term trend is Bullish and target at around 9476 level on upper side.

Maintain a Stop Loss at 8110 level for your long positions too.
 

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

BRFL, M&M, Tata Motors, National Alum, Mphasis, TVS Motor, JP Associates, Edu Comp, Ster & Escorts.

And this is list of 10  Weak Futures:

Rolta, Aban, Triveni, Indian Bank, EKC, Ranbaxy, Yes Bank, Patel Eng, Moser Baer & Tata Chem.
 Nifty is in Down Trend.

 

GLOBAL CUES & RUPEE

The Dow Jones Industrial Average closed at 7,216.97. Down by 7.01 points.

The Broader S&P 500 closed at 753.89. Down by 2.66 points.

The Nasdaq Composite Index closed at 1,404.02. Down by 27.48 points.

The partially convertible rupee <INR=IN> ended at 51.385/395 per dollar on yesterday, stronger than Friday's close of 51.48/50.

OIL & GAS INDEX Stocks May Zoom

 

-ve to Market: 1. Expecting the YOY result from big boys will not meet
the market and DS expectation 2. Huge built up of puts and short in
March series will provide the expectation of the down side in coming
days. [Watch the discount on March] 3. US Market 4. SGX nifty 5. Asian
Market 6. There is no positive news will come from Govt. [because of
the announcement of the Election date] 7. International market
condition also will not boost the Indian market 8. FII's continuous
selling in the Indian/International market. 9.  Mutual fund's
redemption pressure for the year 2009 March. 10. There is no
investment buying in DII 11. ADR/GDR slide.

 

NIFTY & SENSEX SPOT LEVELS FOR TODAY

	2777.25	( 2.13 %)	58.00
		1	2	3
Resistance		2805.48	2833.72	2885.48
Support		2725.48	2673.72	2645.48

	8943.54		( 2.13 %)	186.93
			1	2	3
Resistance			9033.69	9123.85	9291.96
Support			8775.42	8607.31	8517.15

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	16-Mar-2009	1318.24	1420.58	-102.34

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	16-Mar-2009	810.18	556.79	+253.39

 

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 17th March 2009

Trading Calls 17th Mar 2009
USE STRICT Stop Loss for todays trading
BUY Jindalstl-1086 above 1100 for 1155 with sl 1086
BUY Jpassociat-77 above 79 for 85 with sl 77
BUY SBI-987 above 992 for 1020 with sl 985
BUY Essaroil-73 above 75 for 82 with sl 73
Short Sunpharma-999 below 990 for 960 with sl 1000
Short HDFCBank-844 for 830 with sl 850

NIFTY FUTURES (F & O)
Below 2749 level, expect profit booking up to 2716-2718 zone and thereafter slide may continue up to 2685-2687 zone by non-stop.
Hurdle at 2784 level. Above this level, rally may continue up to 2790-2792 zone by non-stop.
Cross above 2821-2823 zone, it can zoom up to 2852-2854 zone and supply expected at around this zone and have caution.
On Negative Side, rebound expected at around 2654-2656 zone. Stop Loss at 2623-2625 zone.

Short-Term Investors:
Bullish Trend. 3 closes above 2531 level, it can zoom up to 2913 level by non-stop.

BSE SENSEX
Traders can expect rebound.

Short-Term Investors:
Short-Term trend is Bullish and target at around 9476 level on upper side.
Maintain a Stop Loss at 8110 level for your long positions too.

Strong & Weak futures
This is list of 10 strong futures:
BRFL, M&M, Tata Motors, National Alum, Mphasis, TVS Motor, JP Associates, Edu Comp, Ster & Escorts.
And this is list of 10 Weak Futures:
Rolta, Aban, Triveni, Indian Bank, EKC, Ranbaxy, Yes Bank, Patel Eng, Moser Baer & Tata Chem.
Nifty is in Down Trend.

GLOBAL CUES & RUPEE
The Dow Jones Industrial Average closed at 7,216.97. Down by 7.01 points.
The Broader S&P 500 closed at 753.89. Down by 2.66 points.
The Nasdaq Composite Index closed at 1,404.02. Down by 27.48 points.
The partially convertible rupee <INR=IN> ended at 51.385/395 per dollar on yesterday, stronger than Friday's close of 51.48/50.
OIL & GAS INDEX Stocks May Zoom

-ve to Market: 1. Expecting the YOY result from big boys will not meetthe market and DS expectation 2. Huge built up of puts and short inMarch series will provide the expectation of the down side in comingdays. [Watch the discount on March] 3. US Market 4. SGX nifty 5. AsianMarket 6. There is no positive news will come from Govt. [because ofthe announcement of the Election date] 7. International marketcondition also will not boost the Indian market 8. FII’s continuousselling in the Indian/International market. 9. Mutual fund’sredemption pressure for the year 2009 March. 10. There is noinvestment buying in DII 11. ADR/GDR slide.

NIFTY & SENSEX SPOT LEVELS FOR TODAY

	2777.25	( 2.13 %)	58.00
		1	2	3
Resistance		2805.48	2833.72	2885.48
Support		2725.48	2673.72	2645.48

	8943.54		( 2.13 %)	186.93
			1	2	3
Resistance			9033.69	9123.85	9291.96
Support			8775.42	8607.31	8517.15

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	16-Mar-2009	1318.24	1420.58	-102.34

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	16-Mar-2009	810.18	556.79	+253.39

--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 16th March 2009

NIFTY FUTURES (F & O)
  Expect rally up to 2732 level for time being.

Support at 2694 & 2706 levels. Below these levels, expect profit booking up to 2665-2667 zone and thereafter slide may continue up to 2638-2640 zone by non-stop.

Buy if touches 2557-2559 zone. Stop Loss at 2530-2532 zone.

On Positive Side, cross above 2759-2761 zone it can zoom up to 2786-2788 zone and if crosses & sustains at above this zone then uptrend may continue.
  
Short-Term Investors:  
 Bullish Trend. 3 closes above 2531 level, it can zoom up to 2913 level by non-stop.
 
BSE SENSEX   
 Traders can expect rally further.

  
Short-Term Investors:  
 Short-Term trend is Bullish and target at around 9476 level on upper side.

Maintain a Stop Loss at 8110 level for your long positions too.
 

GLOBAL CUES & RUPEE

The Dow Jones Industrial Average closed at 7,223.98. Up by 53.92 points.

The Broader S&P 500 closed at 756.55. Up by 5.81 points.

The Nasdaq Composite Index closed at 1,431.50. Up by 5.40 points.

The partially convertible rupee <INR=IN> ended at 51.48/50 per dollar on Friday, stronger than Thursday's close of 51.88/90.

SENSEX Stocks May Zoom

 

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 Cues
Global 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 monitor
Options' 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 Index
India 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 trend
The 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 rally
The 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 up
But 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 swings
How 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

Weekly Market Outlook 16th - 20th March 2009

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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 Cues
Global 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 monitor
Options' 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 Index
India 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 trend
The 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.

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Given the continuing correlation with the US market, a recovery there may be a precondition to any sustained improvement in Indian stocks.

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"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 rally
The 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 up
But 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

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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.

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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 swings
How 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
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