Both Budgets as well as RBI policy turn out to be damn squibs as expected. Bulls under threat!

The Nifty came within a whisker of the weekly stop loss of 5,295 points which has made the bulls’ condition precarious. One should utilize rallies if any to liquidate longs as further selling pressure is expected

S&P Nifty close: 5317.90

 
Market Trend
Short Term: Sideways       Medium Term: Sideways        Long Term: Down


The Nifty opened strong and came within a whisker of the R2 level of the week pegged at 5,506 (actual high 5,499) points but failed to take out the crucial resistance level of 5,516 points (as mentioned last week). Failure to do so resulted in profit taking as well as some speculative selling which resulted in the Nifty declining sharply to close with a marginal loss of 16 points (-0.29%). Both the budgets as well as the Reserve Bank of India (RBI) policy turned out to be damn squibs as we had envisaged in the last week's piece.

The sectoral Indices which outperformed were BSE Fast Moving Consumer Goods (+2.94%), BSE Auto (+1.35%), BSE Capital Goods (+0.56%) and BSE Metal (+0.14%) while the gross underperformers were BSE Consumer Durables (-2.20%), BSE Healthcare (-1.40%), BSE IT (-1.03%) and BSE Bankex (-0.97%).   

The weekly histogram MACD continued to move down but is above the median line indicating that the correction is still on. However, there was a significant increase in Volumes during last week's decline which is a warning that the bulls are losing their grip and further decline can be expected. A close of the "gap area" between 5,243-5,291 would be a sign of weakness.

Here are some key levels to watch out for this week

 

  •  As long as the S&P Nifty stays below 5,374 points (pivot) the bulls would be under pressure in the near term even though the intermediate trend is sideways.
  •  Support levels in declines are pegged at 5,248 and 5,179 points.
  •  Resistance levels on the upside are pegged at 5,443 and 5,568 points.

Some Observations
1.    The Nifty closed above the first resistance level of 5,455 points only for a day, however, it failed to take out the crucial resistance level of 5,516 points.
2.    Despite the price being above the weekly averages for six weeks, they still continue to be negatively phased.
3.    After the elections results the budgets as well as the RBI policy proved to be damn squibs as was envisaged in last week's piece.

Strategy
The Nifty came within a whisker of the weekly stop loss of 5,295 points which has made the bulls' condition precarious. A close below this level would result in further bull liquidation taking the Nifty towards the 61.8% retracement level (4,986 points) of the rise from 4,588-5,629 points. Resistance levels in rallies are pegged at 5,374 and 5,463 points. One should utilize rallies if any to liquidate longs as further selling pressure is expected especially if the above mentioned stop loss is hit as well as the "gap area" between 5,243-5,291 points gets closed.

(Vidur Pendharkar works as a consultant technical analyst & chief strategist, at trend4casting.com)

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RBI hails fiscal measures, but evasive on rate cuts

RBI deputy governor Subir Gokarn said the focus on increasing revenue through higher indirect tax mop up and the move to cap subsidies under 2% of the gross domestic product (GDP), are a very reliable way to contain chances of fiscal slippages

Mumbai: The Reserve Bank of India (RBI) on Friday welcomed the Budget proposal to bring down fiscal deficit to 5.1% saying the strategy of increasing indirect taxes and capping subsidies are reliable measures to control deficit, reports PTI.

It, however, said this will not have any immediate bearing on the central bank’s monetary policy stance.

“Budget proposals are an important consideration, and positive development, but the monetary stance is not going to be influenced by only one factor”, deputy governor Subir Gokarn said.

He said the focus on increasing revenue through higher indirect tax mop up and the move to cap subsidies under 2% of the gross domestic product (GDP), are a very reliable way to contain chances of fiscal slippages.

“It (fiscal deficit target) is a reasonable reduction in the deficit which is what we wanted to see from our standpoint. Also the fact that it is coming from the revenue side which is more controllable in terms of realisations, which also suggests that the risk of slippages are that much low,” Mr Gokarn told reporters at the RBI headquarters here.

He also welcomed finance minister Pranab Mukherjee’s move to cap subsidies under 2% of GDP next fiscal, saying it will give a fillip to the process of fiscal consolidation.

Mr Gokarn, who handles monetary policy at the Mint Road, said exceeding this cap will result in fertiliser, diesel and food prices going up. The monetary policy will take into account the inflationary pressures which would come out through such increases, he added.

Mr Gokarn listed the movement of crude prices along with GDP data and other factors like monsoon to be a key determinant of the way the monetary policy will move.

He also said pegging GDP growth at 7.6% for the next fiscal and average inflation at 6.4% are also not ‘unrealistic’.

In his Budget speech, Mr Mukherjee pegged FY12-13 fiscal deficit at 5.1% of GDP, lower than the revised figure of 5.9% for FY11-12. He also said the government will have to borrow a net of Rs4.79 lakh crore to bridge this gap.

Deputy governor HR Khan who was also present at the review, admitted the government borrowing programme is a ‘challenge’ and said RBI will meet the finance ministry officials before 31st March 31 to draw up the borrowing calendar for the next fiscal.

Mr Khan further said other announcements like opening the corporate bond market to qualified investors and relaxations on the external commercial borrowings front for aviation and power sectors will reduce pressure on the external sector.

On the tight liquidity in the system, Mr Gokarn said it would ease from the first week of April onwards.

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Decision on railway minister unlikely before Monday

A meeting of the Congress Core Group was held on Friday, ahead of the discussion on the Railway budget in Parliament next week, amid speculation as to who will reply to the discussion as railway minister Dinesh Trivedi’s fate hung in balance

New Delhi: A decision on the fate of Railway Minister Dinesh Trivedi is unlikely before Monday, reports PTI.

An indication to this effect came last night after the Congress top brass including prime minister Manmohan Singh and party chief Sonia Gandhi deliberated deeply on the strategy ahead in the backdrop of the Trivedi issue and the Uttarakhand crisis.

The meeting of the Congress Core Group was held ahead of the discussion on the Railway budget in Parliament next week amid speculation as to who will reply to the discussion as railway minister Dinesh Trivedi’s fate hung in balance.

Consultations by the Congress leadership were held amid signals that the government was in no hurry about the exit of the railway minister, projecting it as the internal matter of the ally Trinamool Congress.

Congress high command feels that there appears to have been a re-thinking over the Trivedi issue inside the TMC giving the ruling party much needed time, sources said.

TMC chief Mamata Banerjee has written to the prime minister seeking Trivedi’s replacement.

The TMC has emerged as the most troublesome ally of the Congress at the Centre at a time when its options have been limited by the outcome in the assembly polls in five states.

Party source said the Core Group also discussed the situation in Uttarakhand, where the four-day old Congress government is facing a severe crisis.

Embattled chief minister Vijay Bahuguna Friday rushed to Delhi and had a meeting with Ms Gandhi, a day after 17 Congress MLAs, mostly loyalists of Union minister Harish Rawat, refused to take oath in the state assembly to register their protest against choice of Mr Bahuguna for the top post.

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