This is list of 10 strong futures:
Nifty is in Up trend
 | 4941.75 | ( -1.27 %) | -63.80 |  |
| 1 | 2 | 3 | ||
| Resistance | 5028.97 | 5116.18 | 5227.32 | |
| Support | 4830.62 | 4719.48 | 4632.27 | |
 | 16632.01 | ( -1.32 %) | -222.92 | | |
| 1 | 2 | 3 | |||
| Resistance | 16830.39 | 17028.78 | 17338.75 | ||
| Support | 16322.03 | 16012.06 | 15813.67 | ||
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 27-Nov-2009 | 1449.17 | 2506.35 | -1057.18 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 27-Nov-2009 | 2394.92 | 1696.25 | 698.67 |
Index Outlook: Volatility to the fore again
Sensex (16,632.01)
Those of us who have been deriding the market for its comatose moves over the past fortnight had our fill of action in the last two sessions. Stock prices that had reversed lower on the derivative expiry day began hurtling downward on Friday as the Dubai debt imbroglio surfaced. But just when the 16,000 buttress was on the verge of being shattered, Sensex turned around dramatically reducing the weekly loss to a mere 2 per cent.
The sharp plunge towards the end of the week has turned the short-term trend negative. Daily oscillators are beginning to show early signs of stress. The 10-day rate of change (ROC) oscillator has dipped slightly in to negative zone while the 14-day relative strength index has moved to a value of 47. These levels imply that the short-term outlook is beginning to turn negative.
What is more worrying is the 10-week ROC hovering below the zero line after prolonged negative divergence. We will however wait for this oscillator to move deeper in to the negative zone before calling a medium-term reversal.
Sensex is still poised half-way up the trading range of 15,000 and 18,000 that we are envisaging for a few more weeks. There are so many ifs and buts at this stage that both the bulls as well as the bears are likely to find the going difficult. In other words, the index can move in either direction in the near-term. Here are a few pointers to help investors in the week ahead,
Any attempted rally will face resistance at 16,877 and 17,290. Failure to move beyond the first resistance will mean that the down-move will resume to drag Sensex down to 16,200 or 16,080.
Short-term outlook will turn negative only on a close below the second support and this would pave the way for the decline extending to 15,950 or 15,127.
Target on a move above 17,290 is 17,420 and 17,490.
The zone between 16,000 and 16,200 remains a very important psychological support and the medium-term trend will be under the threat of reversing only on a weekly close below this zone. In such an event, the first medium-term target for Sensex will be the zone between 13,800 and 14,000 where the 200-day moving average is positioned.
Nifty (4,941.7)
Nifty recorded an intra-week peak of 5,138 before plunging to 4,806 on Friday. The index is trying to move higher since Friday afternoon. This move will face resistance at 4,980 and 5,000. Inability to move beyond 5,000 in the early part of the week will result in the index declining to 4,800 or 4,662 in the days ahead.
However a strong move above 5,000 will take the index to 5,138 or 5,176 in the near-term. Our medium-term view remains unaltered and the index is likely move between 4,400 and 5,300 is possible for few more weeks.
Global Cues
Global benchmarks did not reflect the upheaval witnessed in our equity market towards the end of last week. Most developed market indices closed on a flat note while some indices even managed a positive weekly close. It is, however, not right to say that global investors were unfazed by the goings on in Dubai for the CBOE volatility index that was on the verge of declining below 20, was yanked sharply higher on Friday to end the day 21 per cent higher amply reflecting the nervousness among the trading fraternity.
The Dow recorded an intra-week peak at 10,495 on Monday that is just one point short of the immediate target for the third leg from the March low of 6,469 that we have been indicating. The index has also retraced 50 per cent of the previous up-move and a diagonal triangle appears to have been completed at the recent peak of 10,495.
In other words, the Dow is ready for a correction but this could be postponed until early next year and the index could move in a sideways range for the rest of this year. The short-term trend in the index is however positive and a close below 9,960 is needed to alter this view.
Some Asian indices such as Hang Seng, Seoul Composite, Jakarta Composite, Shanghai Composite and so on have received deep cuts last week and could have resumed their medium term downtrends.
Index Strategy: Consider bull call spread on Nifty
Srividhya Sivakumar
After the roller coaster ride of last week, the coming week promises to give some firm direction to the markets. Traders can consider a bull call spread on Nifty by buying Nifty Dec 5,100 call, which closed the week at Rs 92 and selling Nifty Dec 5,200 call which closed at Rs 61. This bull spread will cost you Rs 31. Note that, being a limited risk and limited return strategy, the maximum loss you can suffer from this strategy would be limited to the cost of the spread, i.e. Rs 31. But for your spread to become profitable, the underlying has to breach the breakeven point at 5,131. The maximum profit zone would be reached once the underlying moves past 5,200, in which case the maximum profit would be limited to Rs 69. However, given the high volatility in the markets, we suggest traders to time their purchase and sale of options so as to get more favourable rates.
Exit strategy
Since from a technical point of view the Nifty has to breach the 5,000-mark for it to tread higher, you can consider a premature exit if the index fails to breach the resistance mark decisively. In such a case, exit the long option only; the short call can be kept open so as to lap up the entire premium availed at time of selling it.
Alternate options
Alternately, those willing to up the stakes a bit can also consider buying an out of money put option, as a hedge against any correction in the market. Puts at strikes 4600 and 4700 which closed at Rs 54 and Rs 72 can be considered for the same.
Traders with a relatively lower risk appetite can even consider buying out of money put and call options from the current month Nifty option series. Long Strangle, as the strategy is called, can be set by buying Nifty Dec 5,200 call and Nifty Dec 4,600 put. The strategy would cost you Rs 115 a lot. Here again, the option purchases can be timed to bring the costs down. However, do remember to keep internal stop-loss levels fixed and exit the spread as soon as these levels are breached.
The rocky ride in the RIL counter continued last week as the stock first raced to an intra-week high of Rs 1,110 before plunging to a low of Rs 1,011. Since the stock is now trading at ex-bonus rate, all our resistances and supports need to be halved. Key medium-term resistance for the stock exists at Rs 1,100 and inability to move above this level will result in a sideways move between Rs 900 and Rs 1,100 for a few more weeks. Intermediate term supports for the stock are at Rs 860 and Rs 760 and the stock is expected to halt at these levels in the event of a sharp decline.
Short-term trend in the stock is down and the stock will face resistance at Rs 1,075 and Rs 1,113 in the week ahead. Inability to move past the first resistance will mean that the stock can decline to Rs 1,008 or Rs 980 in the days ahead.
SBI (Rs 2,242.5)
SBI remained in the narrow band between Rs 2,250 and Rs 2,350 in the first four sessions of the week but plunged sharply lower on Friday to the intra-week low of Rs 2,144. The picture has marred slightly on the weekly chart with the formation of an evening star candlestick pattern. The medium-term down trend that began from the Rs 2,500 peak appears to have resumed that has the targets of Rs 2,060 and Rs 1,950. Key medium-term support exists between Rs 1,900 and Rs 2,000 and investors can watch out for buying opportunity in that zone.
The stock will face strong resistance in the zone between Rs 2,350 and Rs 2,400 in the days ahead. If the decline continues, immediate targets are Rs 2,090 and Rs 2,050.
Tata Steel (Rs 544.9)
Tata Steel could not rally to Rs 585 as anticipated by us and declined to Rs 517 instead. As indicated last week, the stock has support at Rs 520 and Rs 507 in the near term and traders holding long positions can continue to do so unless the stock closes below Rs 520. A recovery from here will make the stock rally to Rs 572 or Rs 661.
However key short-term support is at Rs 490. Decline below this level will result in the stock moving in a range between Rs 430 and Rs 600 for a few more months.
Infosys (Rs 2,328.3)
The sharp decline in the last two sessions resulted in Infosys closing the week with a loss of Rs 99. Key short term support for the stock is at Rs 2,260. Traders can hold their long positions till the stock trades above this level. Next downward target is at Rs 2,127.
Key resistance for the week ahead would be at Rs 2,400 and Rs 2,460. Reversal from the first resistance will result in a decline to Rs 2,260.
Medium-term view for the stock will stay positive as long as it trades above Rs 1,900.
ONGC (Rs 1,168.2)
ONGC closed on an absolutely flat note despite the spike to Rs 1,227 on Monday. Our short-term view remains unaltered. Unless the stock records a close above Rs 1,200, it can decline to Rs 1,101 or Rs 1,039 in the ensuing sessions.
Maruti Suzuki (Rs 1,564.1)
Maruti Suzuki moved above the short-term resistance of Rs 1,600 on Wednesday but it could not sustain at that level and declined to Rs 1,510 by the end of the week. Key short-term support for the stock is at Rs 1,480 and decline below this level will drag the stock to Rs 1,368.
Medium-term view for the stock is neutral and a sideways move between Rs 1,350 and Rs 1,750 is likely for a few more weeks. —
Dubai World scare, a trigger for correction?
Cranes tower over buildings under construction in the Business Bay area in Dubai.
Is Dubai World's debt repayment problem merely a delayed aftershock of last year's credit crisis or a fresh tremor likely to shake up the financial system? Opinion may be divided on this; but the event is certainly reason for stock market investors to turn more cautious. For this may be just the excuse the market is waiting for, to launch into a much-needed correction.
The initial stock market reaction to the Dubai World crisis has been to batter down companies which have their fortunes directly tied to Dubai or its troubled investment arm.
The stock of Spicejet, in which a subsidiary of Dubai World owns a 13.4 per cent stake, has been marked down and so have the stocks of Bank of Baroda and SBI, which have admitted to retail and corporate loan exposures in Dubai. History, however, suggests that investors need not worry too much about how these individual stocks may fare because of the crisis. The Dubai entities do not have a significant portfolio exposures to Indian stocks. Even if they hold indirect stakes, the past two years have seen numerous instances of troubled financial giants liquidating their stakes in Indian companies.
Despite recurring investor worries about `Bear Stearns' stocks, `Lehman' stocks, `Merrill Lynch' stocks and recently `Galleon' stocks, the impact of the holders' troubles on stock prices has been quite shortlived.
Stocks with good fundamentals have rebounded to pre-crisis levels, finding ready buyers at lower prices. Stocks with little claim to fundamentals have remained battered.
Given that Indian banks emerged relatively unscathed from the much larger credit crisis of last year, investors in banking stocks may have little to fear from the Dubai scare.
SYSTEMIC RISK
It is the broader market ramifications of this event that stock investors need to worry about. Some financial experts are betting on this crisis being quickly contained through a bail-out of Dubai World by other UAE nations. But if this scenario does not play out, it is feared that this may trigger a fresh bout of risk aversion on the part of lenders around the world. Going by what followed last year's credit crisis, this could lead to a sharp spike in the borrowing costs for businesses (and countries) with inferior credit ratings and a drying up of the now-ample liquidity.
This certainly cannot augur well for the many Indian companies which are now relying heavily on foreign funds to repair their debt-leavened balance sheets. This stock market rally has been led mainly by highly leveraged companies from the commodity and realty space, making such a scenario worrisome.
PROFIT-TAKING TIME?
A phase of risk aversion, once it starts, can also have a big impact on the overall liquidity flows into the emerging markets, India included. Remember that it was returning risk appetite on the part of global investors which laid the foundation for this entire stock market rally.
It is rising risk-taking which has prompted global investors to abandon the safer developed markets and money market funds, and to pour money into all manner of risky assets - commodities, emerging market bonds and emerging market stocks - over the past eight months. The returns from these assets have by now exceeded everybody's wildest expectations.
The temptation to take money off the table and lock into those sizeable profits, is, therefore, bound to be quite high. The Dubai scare has also cropped up at a time when the global markets are being assailed by fresh doubts about the sustainability of the ongoing economic recovery. Will governments be able to exit from their big-ticket stimulus spending?
Will the "recovery" sustain once the props of stimulus are removed? Is consumer confidence robust enough to carry the baton from here on? If the answer to any of these questions turns out to be a "No", then the current stock market rally, which is built on optimism, would certainly be due for a pause.
Indian investors also need to weigh a few additional factors on the scale. At over 21 times trailing earnings, the BSE Sensex is already quite close to the inflexion point at which previous bull markets (of 2007- 08 and 1999-00) halted. With topline growth proving elusive for many companies, even in the recent September quarter, doubts are beginning to emerge on whether Corporate India can deliver on these high expectations.
But, most important, irrespective of how its own corporate or economic fundamentals look, India has always proved to be a high Beta market in the global scheme of things. It races ahead of most other markets when the going is good, but takes a merciless battering when liquidity flows suffer the mildest blip. That may be reason enough for Indian stock market investors to take some money off the table now.
I engage in day-trading in the cash market and also in the futures and options segment. For 2008-09 I have made a loss of Rs 1.70 lakh. Under which head should I show the loss in the return of income? Will this be a short-term capital loss or business loss? What are the criteria that determine the activity as speculative or non-speculative? – Deepak Vats
The loss from dealing in futures and options as well as in the cash market should normally be regarded only as business loss and cannot be treated as a loss under the head capital gains. Section 43(5) provides that where a transaction in goods or commodities, including shares and scrips, is periodically or ultimately settled other than by delivery, the transaction is speculative.
If the dealing is in futures and options the transaction will not be regarded as speculative even if there is no delivery provided the following conditions are satisfied: the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds; the transaction is carried out electronically on by screen-based systems; the transaction is supported by a time stamp contract note which indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also the permanent account number of the client.
I wish to know if long-term capital gains from sale of land can be claimed as exemption in the following circumstances: If investment is made in two properties; if a flat in the first floor of a commercial building is purchased though it is used only for residential purposes.
I had claimed exemption in respect of long-term capital gains from sale of a land by investing in a proposed land project. However the construction could not be completed within three years from the date of transfer due to legal dispute with Municipal Corporation on purchase of the land. It may be noted that the long-term capital gains is not invested for the purchase of land. What will be my position in respect of the exemption claimed by me under these circumstances? – Mohit
Section 54F allows an exemption on the transfer of a long-term capital asset not being a residential house and on reinvestment in a residential house.
Exemption is available if the assessee is an individual or HUF; the gain arises from the transfer of a long-term capital asset not being a residential house; the assessee does not within two years purchase or three years construct any residential house other than the new house; the assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.
The quantum exempt will be depend on if the amount invested is more than or equal to the net consideration then the entire capital gain; or if the amount invested is less than the net consideration then the amount invested multiplied by capital gain divided by net consideration.
It can be seen that one of the conditions in the section requires that the assessee should not within two years purchase or three years construct any residential house other than the new asset.
Further, the section seeks to provide an exemption only on reinvestment in one residential house.
Given this, if you make the reinvestment in two residential houses you will not be eligible for the exemption under section 54F.
Section 54F requires the reinvestment in a residential house for the claim of exemption. The fact that the residential house is located on the first floor of a commercial building will not affect the claim of exemption so long as you can demonstrate that the unit purchased by you is a residential house.
In your case as you have claimed exemption originally under section 54F on sale of a land and reinvestment only in land without constructing a house thereon as required by section 54F even within the stipulated period of three years, the exemption earlier granted in the year of transfer of land when you claimed the exemption originally under section 54F would stand withdrawn.
If, however, the land that is now being sold is the land which was the basis on which the exemption was claimed originally under section 54F, only due to the reason that the construction is not permitted on the said land, you may still be eligible for exemption on the original transfer of land on the basis that the reinvestment could not be made due to reasons beyond your control.
In this connection you may place reliance on the decisions in M.A.C. Khaleeli v DCIT [1993] 48 ITD 191 (Mad), Jagan Nath Singh Lodha v ITO [2004] 85 TTJ (Jd) 173.
I purchased a property in Mumbai in 2003 for Rs 11 lakh. I propose to sell this property for Rs 30 lakh, in which case will my capital gains be Rs 19 lakh? What will be my tax liability on the said capital gains? Can I claim any exemption from such capital gains? – Sharad Sali
Your capital gains will not be Rs 19 lakh. You can from the consideration reduce the indexed cost of acquisition and not merely the cost of acquisition as the asset has been held by you for a period exceeding 36 months.
Indexed cost of acquisition is to be computed by increasing the cost of acquisition in the proportion that the cost inflation index of the financial year of transfer bears to the cost inflation index of the financial year in which the asset was first held by the assessee. The cost inflation index is notified by the Government for every financial year beginning from the financial year 1981-82.
Your tax liability on the gain will be 20 per cent (as increased by the appropriate additional surcharge).
Exemption may be claimed by you under sections 54 or 54F and/or 54EC subject to satisfying the conditions in those sections.
Short-selling is a universally hated but useful tool to make money in the market.
It can bankrupt central banks, batter down bluechips and usually riles up regulators. Short-selling is a universally hated but useful tool to make money in the market. A strategy that can be used for anything ranging from intra-day trades to many months or years, short trades plays an important role in keeping market euphoria under check. A short position is a bet that an asset will be worth less in the future than it is today.
WHY IS SHORT-SELLING USED?
Everyone knows that financial markets are made up of a large number of players with diverging views. This diversity opens the door for a variety of bets on prices. You could choose to bet on a stock being worth more tomorrow or go 'long' on it. The directly opposite bet — the short one — would be that the market has grossly over-priced an asset.
This is essentially a bet that a stock will be worth less in future than it is today. Why would you go 'short' on an asset? You may believe that the market has overestimated an asset's future potential or payouts. Or that an asset's price has run far ahead of its historical levels.
HOW TO SHORT-SELL?
Short positions can be taken in equities, commodities or currencies. India allows only institutional investors to participate in short-selling of certain scrips which are also available for derivatives trading. A typical short-sale in shares would go like this: The investor would borrow shares of a company A and sell them at Rs 100. Once the expected price correction occurs, he would purchase the scrip for, say, Rs 80 and return it to the initial lender. He, thus, pockets Rs 20 per share as his "profit" from the transaction.
There are several risks associated with such a transaction which could lead to heavy losses. If the share price rises instead of falling , the individual would need to purchase the scrip at a higher price than he sold them for. This is what is known as 'short covering'.
A 'short squeeze' happens when there is a rush for stocks that were shorted, causing its price to spiral. In this scenario, the individual cannot buy the scrip and winds up paying a premium over his sale price. A variant of short-selling called 'naked' short-selling is outlawed in most markets. In this, the individual sells shares without borrowing or owning them in the first place and deferring delivery for as long as lucratively possible.
This scenario distorts the demand-supply equation as it artificially pushes the price lower, creating a 'self fulfilling prophecy' of lower prices. Several market participants allege that naked short-selling was one of the causes of the demise of investment bank, Lehman Brothers, in 2008.
Derivatives provide the opportunity to limit the losses from short-selling. A market contract such as an option could be tailored to be a 'hedged' short bet.
For example, one could buy a put option for a premium and have the right to sell a stock at a lower price in the future. At the end of the contract period, if one chooses not to sell, he forfeits the premium. By using a put option, one is limiting the downside of a short position to the contract premium.
Short positions do fulfil a useful role. Bull markets more often than not do have their excesses. If unfettered buying pushes asset prices up, short positions enable investors or speculators to take the opposing bet. This could act as a offsetting influence to temper undue euphoria.
However, a massive build-up of short positions, especially backed by leverage or borrowing of shares, could also lead to a bubble-like situation, where stock prices are beaten down to unfairly low valuations.
A euphoric bull market with rising prices leaves most parties involved more than satisfied. For most investors, a bear market with short positions erodes wealth, regardless of the rationale or virtue. The results are undesirable for most market participants.
What I'm trying to buy are stocks with the lowest expectations… the ones people love to hate. When expectations are low, I don't lose too much money. If I buy something based on momentum and then I'm wrong, the downside can be huge.
NITIN BAJAJ, FUND MANAGER, FIDELITY INDIA VALUE FUND
I'd like to buy stocks that are in the front page for the wrong reasons," says Mr Nitin Bajaj, Fund Manager for Fidelity's new India Value Fund.
Excerpts from an interview with Business Line:
How will you identify stocks that offer "value"?
Value investing means buying something for less than what it is worth. It means that I would like to buy something that is worth Rs 100 at Rs 50. But to decide that something is worth Rs 100, you need to understand the business. How does it make money, why it does so and how sustainable are the competitive advantages, what does the competition do. Basically, try and understand the whole environment around the business. I need to talk to competition, suppliers and consumers.
As a value investor, I don't want to buy good businesses at good prices. I want to buy them when they make a mistake, when the managements go wrong. I want to buy when the market makes a mistake about the business. Markets operate on greed and fear. These are very strong emotions and cause irrationality. Therefore, I see two components to value investing. Understanding the business better than anyone in the market. Then studying the valuation historically. Then you decide whether the market is paying too much or too little for it.
What quantitative parameters would you use to identify value stocks?
That depends on the franchise I am looking at. For hard asset-based businesses like refining or cement or a zinc processor, I would look at replacement cost. How much would it cost to put up a plant and how much am I now paying for it in the market? For a business driven by its economic goodwill, its brands or intellectual property, I would look for the price-earnings ratio, free cash flow yields (free cash flow/market cap), or dividend yield.
If you look at the track record in India, value investing performed well in the initial phase of recovery from a slump. However, when recovery becomes well-established, value investing may not deliver as much as growth investing. So, is today a good environment for value investing?
Value investing does very well at inflexion points and badly in bubbles. No one wants to buy a company with bad fundamentals when you go into a bubble. However, the question today is, are you sure we are in a bubble? Are you sure growth is sustainable? We don't know. So these questions are all about whether you can tactically time the market or a recovery. But who is confident about what will happen with the global economy? Therefore, I would say it is better to stick with value investing. Understand well the business you are investing in. Stick with the process you understand. If you are saving money for the long term, stick with a strategy that delivers secular returns.
Why does Fidelity India Value Fund allow overseas investments? Is it a call on valuations abroad being cheaper?
No, not at all. I have a lot of experience investing outside India and Fidelity has a huge network of analysts and intellectual property which is engaged in tracking companies worldwide. I thought it would be good to leverage this for the benefit of investors in this fund. I am not saying the actual allocation to overseas stocks in this fund will always be 10 per cent.
The intention is to make money for investors. For instance, suppose we have a textile stock in India which may double my money. If I find a stock in China which can treble my money in the period, I should probably opt for the latter! There is also the matter of sectors which are not represented in India. I own platinum mining companies in one of my other funds. I don't have those options in India.
What's your take on broader market valuations?
They are not cheap. They are not in bubble territory either, but they certainly are not cheap. Between March and now it didn't matter what stocks you bought. Ninety per cent of the stocks went up. From now, over the next two-three years, you will see greater divergence. Some stocks will move up and others down. So if you research and understand valuations before making decisions, you may be able to make the best of these markets. I will take a bet that there are quite a few stocks which, even if you enter today, will be much higher three years later. So it is back to basic research.
Do you find more pockets of value in the mid- or small-cap space?
Yes, for the present the fund will have a mid-cap bias. However, that may not be a longstanding strategy, and may change depending on how valuations move.
In March, stocks that traded at the lowest PEs were the distressed companies with a lot of debt on the balance sheet. So, does value investing not mean that you run a risk on the business at times?
In some cases, yes. But often times, no. One example I used in my presentation is that of European tobacco companies in the early part of the decade. They traded at 8-10 per cent dividend yields. Their balance sheets were fantastic, but people just hated them. So, what is the risk you are running? Hero Honda traded at single digit PEs for much of this decade, with a great business and a good management.
What I'm trying to buy are stocks with the lowest expectations… the ones people love to hate. The key question is "What if I'm wrong?". When expectations are low, I don't lose too much money. If I buy something based on momentum and then I'm wrong, the downside can be huge. If you bought into housing when expectations were high or technology stocks when they were high, you lost your shirt. But if you bought textile companies you didn't make too much money, but the downside wasn't that high. Risk really is all about losing money.
Arvind Parekh
+ 91 98432 32381
