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Saturday, July 18, 2009

Week Ahead

Updated: Jul 17, 2009 at 23:15



WEEK AHEAD


The market may extend gains after a more than 9% surge in the week ended 17 July 2009. The undertone remains bullish as analysts expect a turnaround in the economy the near future as government stimulus packages take effect. Revival of the monsoon rains and initiatives on divestment may support stocks. With earnings season in progress, companies unveiling their June 2009 quarterly results will be in the spotlight.



NIFTY RANGE
4100-4700

CRUCIAL
SUPPORT 4180 & RESISTANCE 4480

APPROACH
One should be on the long side and not look at levels

STRATEGY
Book profit in Rally & wait for Correction to enter fresh.

MARKET TREND
It is difficult to make a call but the short-term trend is up.

MARKET OUTLOOK
Right now, what we are pricing in is a fair value plus about 15-20% growth in earnings which is not out of whack with our markets.

SECTOR TO WATCH
Banking & Infrastructure

FACTORS
Revival of the monsoon rains, Initiatives on divestment & Earning

IMPORTANT
Big move is coming. But we would like to see really what will trigger the move.



· TECHNICAL:

Nifty is on its way back to above 4600, But it will test the resistance levels seen earlier on June 12. The market has been trading in a fairly wide trading band and that kind of position remains as of now. It should go and test 4600.and maybe one could see a correction from there. In all likelihood it will go and test the earlier highs of about 4600.

Don't see too much downside. But if Nifty goes seriously above 4600 level, it will be advisable to exit and wait because at that point there would be a mismatch between the valuation and the pricing. Right now, what we are pricing in is a fair value plus about 15-20% growth in earnings which is not out of whack with our markets.

We may have a target of close to 4600-4700 so one needs to keep that in perspective and plan a trading strategy accordingly. There could be a flutter from 4350 levels. In the near term right now, if there is any immediate downside 4180 around is likely to be a strong support. We can have one sharp intraday dip or a one-day crack but very near-term 4180 around should hold. The next resistance is at 4480 and the later target is towards 4620.

· MOMENTUM:

What a terrific day this is turning out to be. Two fantastic days; one day for pause, yesterday and the markets ready to fly once again that’s the message on the screen; no volatility, its been doing strong. It did not open with a massive gap up just about 30 odd points higher on the Nifty but now is up 130 points, so it’s been a gradually upwards climbing graph during the course of the day. The Sensex is up 430 points, this is about to cap up one of the best weeks we have seen recently. Last week there was a big sell off in the market and now the market seems to be getting right back to where it fell off from. So it was 8-9% down week and now its 8-9% up week that we are headed for a close. So the budget disappointment or the sell off is been unwound almost completely over the last few sessions. Last four sessions has taken to unwind most of it, another 100 odd points and we will be there at pretty much the pre budget level, now at more than 4350.

It is difficult to make a call but the short-term trend is up. As far as it remains up, we never know. The fact remains that a downtrend was stemmed almost exactly at support. We were talking of 3800 and just 100 points short of that, that decline is over now.

The momentum favors the bulls. The key here is you should be on the long side and not look at levels. 4480 is the first resistance and if that is crossed we think quite easily we will reach 4620.

· DISINVESTMENT:

A progress on disinvestment will lift sentiment. On 14 July 2009, the Union Finance Minister, Pranab Mukherjee, told Lok Sabha that the Finance Ministry has initiated discussions with other ministries and departments for identifying the state run firms where a portion of Government shareholding can be sold.

Earlier in his budget speech on 6 July 2009, the Finance Minister had pegged the revenue estimates from disinvestment at Rs 1,120 crore for 2009-10, lower than the Rs 1,165 crore garnered in 2008-09.

The government is reportedly considering to divest stake in four PSUs -- National Minerals Development Corporation (NMDC), Kudremukh Iron Ore Company (KIOCL), Manganese Ore (India) (MOIL) and Rashtriya Ispat Nigam (RINL) - administered by the steel ministry, as part of a broader plan to mobilise resources to meet their funding needs.

· ECONOMY:

Meanwhile, analysts expect a turnaround in the economy the near future as government stimulus packages take effect. As per government data released on 11 July 2009, India's industrial output rose by a higher-than-expected 2.7% in May 2009, indicating interest-rate cuts and stimulus measures are helping revive demand. This is significantly more than the downwardly revised 1.2% growth in April 2009.

· GLOBAL FRONT:

At the global level, sentiment has been improving with the US Federal Reserve on 15 July 2009 lifting its forecast for the recession-hit American economy. It now forecasts that the economy will shrink between 1% to 1.5% in 2009 from its earlier forecast of a 1.3% to 2% contraction.

Renowned economist Nouriel Roubini said on 16 July 2009 said the worst of the financial crisis is over and the US economy was no longer in a free fall.

US retail sales grew for the second consecutive month, rising 0.6% in June 2009 as compared with 0.5% gain in May 2009. Eurozone industrial production rose for the first time in nine months in May 2009. Production in the 16 countries that use the euro recorded a monthly growth of 0.5% in May 2009, compared to a revised 1.4% fall in April 2009.

· RIL-RNRL CASE:

Closer home, the Supreme Court hearing on the Reliance Industries (RIL)-Reliance Natural Resources (RNRL) due on 20 July 2009 will be closely watched. RIL said on 17 July 2009 it has no unfettered rights to Krishna Godavari (KG) Gas. The company told the Supreme Court that it is bound by government policies on the pricing and sale of gas produced at the KG-D6 field, following a petition filed by Reliance Natural Resources (RNRL) seeking enforcement of a lower court order on supplying gas for less than the price set by the government.

The SC is scheduled to hear the dispute on 20 July 2009 in what could be the final stage of a wrangle sparked by the breakup of the Ambani family empire in 2005. The Bombay High Court ruled that RIL must honor a 2005 agreement to sell gas from the Bay of Bengal field to estranged brother Anil's company.

· EARNING:

Earnings unveiled by Indian companies so far have been encouraging. The combined net profit of 122 firms rose 60% on 18% rise in sales in Q1 June 2009 over Q1 June 2008.

Wipro, Housing Development Finance Corporation, Bharat Heavy Electricals, ACC, Oil & Natural Gas Corporation, Maruti Suzuki India and Ranbaxy Laboratories will declare their June 2009 quarterly results in the forthcoming week.

Others companies that will unveil their June 2009 quarterly results next week include Petronet LNG, JSW Steel, Infrastructure Development Finance Company, Chambal Fertilizers & Chemicals, Dr Reddy's Laboratories, Thermax, Ultratech Cement, Mastek, Canara Bank, Siemens, Ambuja Cements, Biocon and Hindustan Construction Company.

· MONSOON:

Investor will also monitor the progress of India's annual monsoon. India's monsoon has revived this month after a dismal start last month. Rainfall in the week to 10 July was 6% more than the long-term average. For the 1 June-15 July period it was 27% below normal, improving from a deficit of 36% up to 8 July.

The weather office has also forecast widespread rainfall in the next five days in most regions of India where more than two-thirds of the people live in villages and 60% of the farm land depends on the annual rains.

The June-September monsoon rains are a major influence on the economy, as two-thirds of Indians depend on agriculture and large areas of the vast south Asian country suffer from a lack of modern irrigation facilities. Poor monsoon rains could dent rural demand, hurt corporate profitability and undermine sentiment in financial markets.


IN-A-NUTSHEL:

We had already a big rally and now we think is the time to stand aside a little and look how the markets will move. We think a big move is coming. But we would like to see really what will trigger the move.

It is difficult to make a call but the short-term trend is up. As far as it remains up, we never know. The fact remains that a downtrend was stemmed almost exactly at support. We were talking of 3,800 and just 100 points short of that, that decline is over now.

The momentum favors the bulls. The key here is you should be on the long side and not look at levels. 4480 is the first resistance and if that is crossed we think quite easily we will reach 4620.





THE WEEK THAT WAS

For the week, BSE Sensex surged 9.5% and the NSE Nifty added 9.3%.

The key stock indices recorded its biggest weekly gain since May 24. The FM’s clarifications in parliament on disinvestment and the borrowing programme, coupled with reports of encouraging progress in monsoon led the recovery after last week’s sharp decline. Strong global cues also helped. Finally, the BSE Sensex surged 9.5% and the NSE Nifty added 9.3%.

The BSE Sensex hit an intra-week high of 14,801 and low of 13,220. While, the NSE Nifty hit an intra-week high of 4,390 and low of 3,918.

The Foreign Institutional Investors bought stocks worth Rs7.59bn during the week and the Domestic Institutional Investors also purchased stocks worth Rs9.61bn during the week.

· The top gainers:

The top gainers in the Sensex were DLF (up 19.4%), ICICI Bank (up 18.1%), Reliance Capital (up 16.9%), Tata Motors (up 16.7%) and Hindalco (up 15.8%).

· The Top Losers:

HUL was the only loser among the 30-components of the BSE Sensex. The stock was down 0.22%.




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