Market Outlook for 2.3.09

Headlines : 2 March 2009 
  Corporate News Headline
• Tata Steel reported consolidated Q3'09 result, total income went up 4% on yoy at Rs. 332.23 bn and net profit dropped 44% to Rs. 7.32 bn. (BS)
• ONGC is planning an IPO of its subsidiary, which is building the Rs. 124.4 bn petrochemical plant at Dahej in 2011. (BS)
• Gujarat NRE Coke is planning to issue 4 mn convertible warrants to non-promoters to raise funds for the company subject to shareholder approvals. (BS)
  Economic and Political Headline
• The Indian economy grew by 5.3% in the third quarter, the slowest quarterly growth this fiscal, pulled down by contraction in manufacturing and farm production even as some services showed robust expansion. (BS)
• The US economy shrank 6.2% annual pace from October through December, at a faster pace than previously estimated as consumer spending plunged, companies cut inventories, and exports sank. (Bloomberg)
• The US government ratcheted up its effort to save Citigroup Inc., agreeing to a third rescue attempt that will cut existing shareholders' stake in the company by 74%. (Bloomberg) 
 

Trading Calls 02nd Mar 2009
-ve Sector & scripts : Sterlinbio, Cement
USE STRICT Stop Loss for todays trading
Short Centurtex-179 for 165 with sl 183
Short Grasim-1373 for 1350-1320 with sl 1390

Short DLF-152 below 147 for 100 with sl 155 [positional]
Short ONGC-691 for 650-600 with sl 712

 

-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

 

NIFTY FUTURES (F & O)
  Expect selling up to 2703-2705 zone for time being.

Hurdle at 2745-2747 zone. Above this zone, expect short covering up to 2779-2781 zone and thereafter expect a jump up to 2812-2814 zone by non-stop.

Cross above 2845-2847 zone, it can zoom up to 2877-2879 zone and supply expected at around this zone and have caution.

On Negative Side, rebound expected at around 2671-2673 zone. Stop Loss at 2638-2640 zone.
  
Short-Term Investors:  
 Bearish Trend. 3 closes below 2974 level, it can tumble up to 2510 level by non-stop.
 

BSE SENSEX  
  False signal is likely. Traders can expect fall further.
  
Short-Term Investors:  
 Short-Term trend is Bullish and target at around 9377 level on upper side.

Maintain a Stop Loss at 8619 level for your long positions too.

GLOBAL CUES & RUPEE 

The Dow Jones Industrial Average closed at 7,062.93. Down by 119.15 points.

The Broader S&P 500 closed at 735.09. Down by 17.74 points.

The Nasdaq Composite Index closed at 1,377.84. Down by 13.63 points.

The partially convertible rupee <INR=IN> closed at 51.10/12 per dollar on Friday, weaker than Thursday's close of 50.45/47.

SENSEX Stocks May  Fall

 

Banks: Will Lose Half Their Market Cap By December 2009
 

Inflation is being used as a ruse to cut interest rates by the joker at RBI. Common sense tells that low commodity prices which underline a recession are responsible for a lower inflation and not a supply side response. The very factors that built up a strong case for banks a mere six months ago could as easily reverse if the Global Economies begin growing. However, 30 years of zero interest rates have achieved nothing for Japan, and so far similar efforts in the US and Europe have failed.
 
"Money has a cost" is the idiom the guy at RBI needs to understand, throwing money at dead businesses will mean sizeable business losses in six months from now. It is already an open secret that all Bank NPA figures are fudged in India, but with sub 10 per cent PLRs this will become difficult to hide. Starting from SBI, PNB, BOB, BOI, HDFC, HDFC Bank and Kotak Bank could halve even from here. This is going to become the last sector to be crushed in the fall of CY2009.
 
Five worst years of Governance

The 18 party coalition facing elections in 3 months from now has been the worst in India's history. Virtually nothing has been done to strengthen the economy. The recent flurry of CRR cuts has lost meaning, the Rupee has plunged to 51 to a dollar, continued FII selling & resultant withdrawal of dollars from the system, falling FX reserves and FY09 GDP forecast at 6.8 per cent vs 9 per cent for FY08 is now accepted by all. Meanwhile key western markets continue to cut on technology support services.
 
Debt dependent sectors hit - For India the key channel of influence is through investment appetite and funding. Debt dependent property construction and finance & insurance sectors could slow further.
 
As bad as 2001? - The new GDP forecasts for FY10 put the growth figure at 4 per cent this kind of growth was last seen in the year 2001.
 
Fast credit growth amid rising NPLs is untenable. While the whole world and Indian GDP continues to contract, the massive near 20 per cent increase in yoy credit growth is simply unrelated to the ground realities. Massive quarterly losses at Suzlon, massive currency losses at Ranbaxy and massive fall in profits at United Spirits convincingly prove that all Banks are fudging NPA figures-possibly by taking instalment payments from clients before end of quarter only to re-lend the money two days later. Credit growth is thus only being used to fund losses at Manufacturing industries and not financing growth. This has to stop or the Banks have to singularly decline over the next six months.
 
One final word, expect the Rupee to inch closer to the Rs 55 to 1 USD mark by December 2009. This will imply each and every borrower in FCCBS-from RIL to PSL, JP Associates to UB group will have permanent currency losses that cannot simply be hid by putting them into the Notes to accounts. CY2009 will be a wash-out year for industry
 

Weekly Index Outlook 2nd-6th March 2009

 

 

Sensex (8843.2)

The Government startled investors with fiscal stimulus – III and sops for exporters, less than ten days after announcing a no-frills interim budget. This afterthought did not impress the Indian stock markets that were already weighed down by the Dow and S&P 500 receding to 1997 levels. Sensex ended the week with a slight 0.5 per cent gain. Sensex' closing level does not reflect the wild ride that Indian investors went on last week. Short covering ahead of the expiry of the February derivative contracts led to spectacular recoveries just when the index was threatening to break important supports, on more than one occasion. FIIs stepped up their selling taking the tally of net sales for 2009 to $1.6 billion.

Sensex ended the second month of 2009 down 532 points with yet another red candle on the monthly chart. It is obvious that the index has been vacillating in a range between 8500 and 11000 over the last four months. Bulls would be hoping that this would be a base being built by the index before a sustainable recovery while bears would be betting on this being a temporary distribution phase before the next down-trend. In other words, the medium term trend is still neutral and it would be premature to panic before the benchmark closes below 8316. But the scales are tilted in favour of the bears at this point since the US and European indices that have not only pierced their 2008 lows but retraced the entire bull-market from 2003 to 2007. Just as the riskier stocks follow the blue-chips after a lag in a rally and display similar behaviour in declines, other markets could emulate the developed markets eventually.

Oscillators in both the monthly and weekly charts reflect a continued bearish bias over the medium and long term. We stay with our long-term view outlined at the beginning of this year that the final leg of the down-move from January 2008 peak will play itself out in the first quarter of this year following which an intermediate term up-trend lasting a few months can ensue. The movement of the US and European indices is in consonance with this view.

Sensex held above the support at 8600 last week though the recovery was far from inspiring. If the index starts the week on the back foot, the downward targets would be 8333, 7922 and then 7257.

Conversely, if the RIL-RPL merger set the bourses on fire on Monday, the Sensex can rally higher to 9178 or 9304. It is hard to envisage a rally past the resistance band between 9300 and 9400 just yet.

Nifty (2763.6)
 

Nifty recovered from a low at 2677 on Monday but could not even get past our first resistance. The near-term view for the index stays negative since it is below both the short-term trend line as well as the 50 day moving average at 2870. Short-term traders can sell on rallies as long as the index trades below this level. Downward targets for the Nifty are 2661 and 2615.

Area around 2600 is the key short-term support. Once this is breached, another 100-point decline to 2505 would be on the cards. A firm close above 3000 is needed to mitigate the negative outlook in this index.

Global Cues

The most devastating aspect of last week's trade was the Dow Jones Industrial Average's weekly and monthly close below the 2002 trough of 7197. The S&P 500 has also recorded a monthly close below the 2002 trough of 768. We should, of course, increase the filter and wait for another monthly close below this level to ascertain a long-term reversal. But the fact that bulls were unable to prevent the slide below this level is itself a big blow to the sentiment.

European indices such as CAC and DAX melted below the 2008 lows while FTSE 100 is just approaching this support. DJ Euro STOXX 50 is at 2003 levels. Though the developed markets are crumbling like a pack of cards, Asian and Latin American markets are relatively stable and some markets even closed in the green for the week. Many of these markets are more than 10 per cent higher than their 2008 trough. —

 

Infosys
 

Infosys reversed from the support at Rs 1,160 once again last week and rose to an intra-week peak at Rs 1,240. Short-term resistance for the stock is at Rs 1,260. A reversal below this level would indicate a propensity to decline in the short-term to Rs 1,160 or Rs 1,130. The hanging man pattern formed on Friday in the daily chart indicates that the short-term up-trend since the beginning of last week could have ended.

The medium-term view is still sideways. However a decline below Rs 1,130 would pull the stock lower towards the lower boundary of its medium-term range at Rs 1,050. Bargain hunting would again emerge in the band between Rs 950 and Rs 1,050.

Maruti Suzuki

Maruti Suzuki moved contrary to our expectation last week; surging above the resistance at Rs 640 towards an intra week peak at Rs 714. The targets for the move from the January 23 trough were Rs 714 and then Rs 792. But negative divergences in the daily oscillator advise caution in the near-term as the up-trend lacks momentum. The stock could have difficulty surpassing the Rs 750 level in the near future.

Short-term supports for the stock are at Rs 636 and then Rs 585. Fresh shorts are advised only on a strong decline below the first support. Investors with a medium-term perspective should watch the 200-day moving average positioned at Rs 574.

Reliance Ind
 

Reliance Industries rebounded from our first support at Rs 1,207 last week and closed with a marginal 1-per cent weekly gain. The stock has strong near-term resistance at Rs 1,335 and then Rs 1,385. The near-term view for this stock is however negative. Traders with short-term perspective can sell the stock on reversal from the either of these resistances.

Key short-term support for the stock would be at Rs 1,200. A decline below this level will signal an impending fall to Rs 1,067 over the medium-term. Out medium-term view for the stock remains neutral and it can continue to move in the band between Rs 1,000 and Rs 1,500 over this time-frame.

SBI
 

A tug-of-war appears to be on in the SBI counter around the Rs 1,000 mark. Five consecutive doji formations days in the Japanese candlesticks chart points in this direction. The short-term trend in the stock remains down.

A decline to the zone between Rs 990 and Rs 1,000 is possible in this time-frame. However, the lower boundary needs to be breached strongly to take the stock to the next medium-term target at Rs 860.

Resistances for the week would be at Rs 1,087 and then Rs 1,030. Failure to move beyond the first resistance will accentuate the bearish near-term view and will be a cue for short-term traders to initiate fresh shorts.

ONGC
 

ONGC too reversed from the short-term support at Rs 657 and recorded an intra-week peak at Rs 729. Ten-day rate of change oscillator reversed lower just below the zero line indicating that the near-term outlook stays weak despite the rally last week. Resistance for the week ahead would be in the band between Rs 740 and Rs 750. Another reversal from here would pull the stock down to Rs 660 or Rs 615.

The medium-term view is negative as long as the stock trades below Rs 750. A decline to Rs 550 remains a possibility as long as this hurdle remains unchallenged. Such a move would be labelled as the third leg down from the November 10 peak.

Tata Steel
 

Tata Steel could not penetrate the support at Rs 158 and rebounded strongly on Friday. Immediate resistances for the stock are at Rs 175 and then Rs 182.

We maintain a cautious near-term outlook for the stock as long as it trades below Rs 182.

Fresh longs should be initiated only on a move above this level as that would then pave the way for a rally to Rs 198.

The medium-term outlook for the stock too remains down.

We retain a bearish medium-term view as long as the stock trades below Rs 197. The stock could test the recent trough at Rs 146 over this period.

Nifty future may move with negative bias

Last week was lacklustre for Nifty traders as the bellwether was confined to a very narrow range despite it being the settlement week for February contracts. The Nifty future moved in narrow band between 2787-2675 and closed the week at 2730. However, it merits attention that not everything about last week's trading was sedate and plain. The rollover numbers, after many months, managed to stir interest. After witnessing rollover in the range of 64-68 per cent for quite some time, Nifty future saw a higher rollover of 76 per cent this time around. Market wide rollover at 75 per cent, however, was lower when compared with previous occasions. The increase in lot sizes may explain the lower-than-usual rollover in market wide positions.

Follow-up

We had advised short-straddle strategy using Nifty Feb 2700-strike. Considering the opening (on Tuesday) and closing prices (on Thursday), the position ended in neutral.

We had also advised traders to go short on Nifty future if it dips below 2700 with a stop-loss at 2750, with the first price target of 2650. This strategy would have ended on a negative note, as the index future hit the stop loss first.

Outlook

As pointed out earlier, the Nifty future stuck to a narrow range of 2650-2820 last week. Despite the Reliance-RPL merger on the cards, we expect the Nifty future to continue moving in a narrow band, with an overall negative overhang. That the Nifty futures, particularly March contracts, witnessed significant additions of short positions validates our stand. The Nifty NSE future now finds critical support at 2680-50. A drop below this level can take it lower to 2550-2500 level. On the other hand, if it manages to sustain at current levels, it can make a steady progress till it reaches the next resistance level at 2820, followed by another at 2950. However, we expect the market to witness sharp slide in the coming week, in which case if it pierces 2650 the probability of Nifty future revisiting its October lows cannot be ruled out.

 

Option monitor

While 2900 and 2700 calls witnessed steady accumulation of open interest position, the 3000-strike witnessed emergence of writers, indicating the presence of a strong resistance at that level. Among the puts, while lower level puts from 2400-2700 strikes witnessed emergence of writing activity, the 2800 put witnessed fresh accumulations. This indicates that traders feel market may face strong resistance while going down. The concentration around 2800-strike for both puts and calls suggests that traders are not as sure of the market direction.

 

Recommendations

We suggest the following two strategies for the coming week.

1) Consider going short on Nifty future with a stop-loss at 2820, if the Nifty future fails to open on very strong note on Monday. The stop-loss can be adjusted progressively so that traders can lock in the profits should the Nifty future trend down. Traders can book profit at 2650 and 2500 levels, depending on their individual risk profile.

2) Traders can also consider setting a bear put spread by buying 2800 put (currently quoting at Rs 144) while selling 2600 put (Rs 66.5). The maximum profit for this spread generally occurs when the underlying stock (Nifty index in this case) declines below the lower strike price and both options expire in-the-money. This works out to Rs 123/contract in this strategy ([2800-2600]-77.5). If Nifty ends in between the strike prices when the puts expire, the purchased put will be in-the-money, and be worth its intrinsic value. The written put will be out-of-the-money, and will have no value. The break-even point is 2756 (i.e. 2800-144). On the other hand, maximum loss for this spread occurs if the index rises above the higher strike price. If both options expire out-of-the-money with no value, the entire net debit paid for the spread will be lost (Rs 77.5/contract in this case).

 

Commodity futures

The process of trading in equity has become simple today. You can do everything on the Internet. But what if you want to buy a few gm of gold or a tonne of aluminium or even a kg of cocoa? Well, you can buy them online too! Welcome to the commodities futures market. India has 25 commodity exchanges, the most popular ones being Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX).

 

Open an account

All you need is to open accounts with registered commodity brokers (such as Religare Securities and Karvy Comtrade). However, note that you will need a separate d-mat account and not the equity d-mat for trading. Also remember, you can't take immediate delivery of what you buy through commodity trades. For example, if you decide to buy 100 gm of gold from MCX, you can take delivery of it only upon the expiration of that contract. What's the advantage? Well, many.

Let's assume one gm of gold is available for Rs 1,500 today and it is expected to trend up . Though you are not in immediate need of gold today, you may feel the need for it after a couple of months. Given such a scenario, it is logical to buy it as and when you may need it. Moreover, what if you don't have adequate money to buy it right now? To circumvent this problem, you can buy a futures contract on gold from an exchange. This gives you an opportunity to lock-in today's gold price against its actual purchase at a later date.

Entering into a contract

When you buy 100 gm of gold from a jeweller, you need to pay up Rs 150,000 right away (1,500 x 100 gm). On the other hand, when you buy a lot of Gold Mini from MCX, you are entering into a contract to buy 100 gm of gold (100 gm being the trading unit for one contract). In this case, your immediate payment would be just 4 per cent of the money you paid on the spot purchase (that is, Rs 6,000).

Intrigued? Unlike spot market transactions (say, gold bought in a jeweller's shop ), your initial outlay of investment in the futures transaction is restricted to the initial margin money. Initial margin is the upfront fees payable to enter into a contract. In this case, if Gold Mini futures contract is trading at Rs 15,000 for 10 gm, (Rs 15,000 is the base value for base quantity of 10 gm), the total amount payable if you were to buy 100 gm of gold will be Rs 150,000. But paying up the initial margin money of Rs 6,000 would suffice to get you the contract (for Gold Mini the initial margin is about four per cent).

So even if gold prices were to move up the way you thought it would, it may leave you with little to worry as you already have a contract to buy gold at lower prices. But, if gold prices do not move up as you anticipated, you may stand to lose the initial margin money paid to enter the contract. Then again, you may have little reason to complain as you will then get to buy gold at lower prices!

 

NIFTY & SENSEX SPOT LEVELS FOR 2nd Feb m2009

	2763.65	( -0.79 %)	-22.00
		1	2	3
Resistance		2797.75	2831.85	2876.50
Support		2719.00	2674.35	2640.25

	8891.61		( -0.71 %)	-63.25
			1	2	3
Resistance			8980.93	9070.24	9196.38
Support			8765.48	8639.34	8550.03

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

Amtek Auto, Bharat Forg, APIL, Maruti, Matrix Labs, Ultra Cemco, Mphasis, Ashok Ley, Power Grid & Colpal.

And this is list of 10  Weak Futures:

Aban, Ranbaxy, Gitanjali, Mah Life, Pantaloon, Indian Bank, GDL, J&K Bank, Syndicate Bank & Andhra Bank.
 Nifty is in Down 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	27-Feb-2009	1824.15	2287.18	-463.03

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	27-Feb-2009	1181.59	532.33	+649.26

--
Arvind Parekh
+ 91 98432 32381