Bulls battered into submission as they fail to defend trendline support

The intermediate trend has turned down from sideways, hence selling into rallies is advisable

S&P Nifty close: 5211.25

Market trend
SHORT term: Down        MEDIUM term: Down        LONG term: Up

The bulls were hammered into submission once the Nifty broke below the trendline support (in black, pegged at 5,468 points). In a week that was dominated by the bears, the Nifty crashed a whopping 271 points (-4.94%). Volumes were marginally lower during the fall, but the fall of over 7.5% over the past couple of weeks is a cause of concern for the bulls. All sectoral indices ended in the red. BSE Reality (-7.47%), BSE Metal (-6.81%), BSE IT (-6.45%) and BSE Teck (-5.91%) led the decline, whereas BSE PSU (-1.78%) and BSE Oil & Gas (-1.85%) held on somewhat.

The Histogram MACD has fallen below the median line due to the sharp fall this week, implying that the intermediate term bias which was sideways has turned down. It has breached the 20wema mark pegged at 5,581 points, after bouncing from it, which confirmed our fears that a failure to take out the resistance line would nullify the efforts of the bulls.

A fall below the trendline support resulted in a sharp drop as was envisaged last week (we expected 5,300 points), but the global developments accentuated the drop. This has broken the backbone of the bulls and some serious and desperate efforts are required from them to stem the rot.

From the developments last week it is very clear that the bears have gained the upper hand and that rallies will be met by selling pressure. The bulls have lost the plot, and unless and until they regain the trendline (in black) they will continue to be under severe pressure. The S&P Nifty hit the 50% retracement (5,127 points) of the rise from 3,918 to 6,335 points, and the 61.8% retracement level is pegged at 4,842 points which should be a crucial support.

Here are some key levels to watch out for this week.

  • As long as the S&P Nifty remains below 5,293 points (pivot) the bears hold the advantage.
  • Support levels are pegged at 5,034 and 4,858 points.
  •  If the S&P Nifty holds above the 5,293 points level in close, it could recover to 5,369 or 5,470 points.

The bears have battered the bulls into submission and it will be difficult for them to recover in the near future. Resistance in rallies will be pegged at 5,293 and 5,369 points, this week. The intermediate trend has turned down from sideways, hence selling into rallies close to the Fibonacci retracement levels of the recent fall from 5,740 points is advisable. Volatility is likely to continue in the weeks ahead. Sell into the rallies.

(Vidur Pendharkar works as a consultant technical analyst and chief strategist with www.trend4casting.com.)


S&P downgrades US sovereign credit rating to ‘AA+’

The downgrade reflects the rating agency's opinion that the fiscal consolidation plan which Congress and the administration recently agreed to falls short of what would be necessary to stabilise the government's medium-term debt dynamics

Washington: In an unprecedented move, Standard & Poor's (S&P) downgraded the US government's 'AAA' sovereign credit rating-a development which raises concerns that investors will lose confidence in its economy, reports PTI.

"We have lowered our long-term sovereign credit rating on the US to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

"We have also removed both the short- and long-term ratings from CreditWatch negative," the credit rating agency said in a statement.

The downgrade, it said, reflects its opinion that the fiscal consolidation plan which Congress and the administration recently agreed to "falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on 18th April 2011," the agency said.

"Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon."

Other prominent credit rating agencies-Moody's Investors Service and Fitch Ratings-affirmed their AAA credit ratings even as president Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody's and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

S & P said: "The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case."

"When comparing the US to sovereigns with 'AAA' long-term ratings that we view as relevant peers-Canada, France, Germany, and the UK-we also observe, based on our base case scenarios for each, that the trajectory of the US' net public debt is diverging from the others," it said.

Including the US, S&P estimates that these five sovereigns will have net general government debt to gross domestic product (GDP) ratios this year ranging from 34% (Canada) to 80% (Britain), with the US debt burden at 74%.

By 2015, S&P projects that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the US debt burden at 79%.

"However, in contrast with the US, we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015," it said.

On Monday, S&P will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors, the statement added.


India Inc first quarter numbers mixed on higher costs

With more than half the companies declaring their results so far, the performance of the corporate sector has been along expected lines

The Indian equity markets have experienced huge volatility in July-August which has seen the Sensex decline from above 19,000 levels to below the 17,000 mark on concerns of rising interest rates, slower global growth, sticky high inflation and high oil prices along with a policy paralysis on the part of the government. However, while events and sentiment affect markets in the short-term, it is earnings growth that is important over the medium- and long-term. So where do Indian companies stand on this score?

Some 559 companies from Moneylife’s data base of 1,300 companies have reported results for the April-June 2011 quarter. On an aggregate, these companies have registered sales growth of 29%, while operating profit growth has been just 14% from that in the corresponding year-ago period. This is an indicator of the impact of rising costs.

One of the top performers among the mega-caps has been Essar Oil which recorded a 42% rise in revenues and 118% rise in operating profits. Mangalore Refinery & Petrochemicals witnessed a 70% rise in revenues to Rs13,371.61 crore, while operating profit soared 141% to Rs226.11 crore from the year-ago period. The company's phase III expansion project is progressing well. The refinery is set to commission additional 3 MMPTA by January or February 2012 which will increase output.

Dr Reddy's Laboratories is another company that has turned in a great performance. Its revenues and operating profit have soared 33% and 94% respectively over the year-ago period. Oil India recorded a 50% rise in sales growth and 80% rise in operating profits. Titan Industries net sales surged 61% to Rs2020.60 crore and operating profit soared 66% to Rs184.55 crore for the quarter. JSW reported sales growth of 52% and operating profit growth of 40% over the corresponding quater of the last year.

Among the banking companies, Indusind Bank stood out with a 48% jump in total income to Rs1,379.98 crore and a 35% surge in operating profit to Rs311.72 crore. The bank's core fee income during the period grew by 44% to Rs187.07 crore, compared to Rs129.58 crore in the previous April-June period. The increase in core income was on the back of a rise in the bank's third-party product income such as insurance and mutual funds, trade and remittances, foreign exchange and investment banking.

Several mega-cap companies turned in a sour performance during the quarter. Zee Entertainment Enterprises was among the worst-performing large companies as revenues grew by just 17% while operating profit tanked 54% from that in the corresponding quarter last year. Bharat Electronics also put up a very poor show, with revenues growing by 2% and profit declining by 44%. Meanwhile, Lupin’s revenues grew by 10%, but operating profit plummeted by 44%.

Also in the list of poor performers among mega-caps is Sesa Goa, JSW Energy, Canara Bank, Exide Industries and Cadila Healthcare. Coal mining and power generation company Neyveli Lignite Corporation managed a revenue growth of only 1%, while profit tanked by 26% over the year-ago period.

Among the large-caps, cigarette maker Godfrey Phillips India posted a nearly two-fold increase in operating profit in the first quarter with a growth of 146% to Rs 99.47 crore, from Rs 40.49 crore in the corresponding quarter last fiscal. The company reported sales growth of 19% for the period. Indian Overseas Bank reported good sales growth of 50% and a net profit growth of 110% for the period. Glenmark Pharmaceuticals reported sales of Rs327.09 crore, a 27% growth year-on-year.

Religare reported one of its worst results with a revenue growth of 63%, but it suffered an operating loss of Rs20.88 crore in the quarter to June 2011, which was higher than the Rs3.41 crore loss in the year-ago period. Religare Enterprises said Religare Capital Markets, its investment banking and institutional equities arm, expanded its South African capability through the acquisition of a controlling stake in local brokerage Noah Financial Innovation (Proprietary) Ltd. Alstom Projects also registered a poor performance, with a 20% fall in revenue and a decline in profit by 90%. Some of the other large-cap poor performers were Nava Bharat Ventures, Welspun Corp, Blue Star, Trent, and Sterlite Technologies.

Among mid-cap companies, Orient Paper & Industries was one of the good performers, registering a phenomenal rise in gross profit for the June 2011 quarter. Profits rose by 47% to Rs116.47 crore from Rs79.40 crore in the corresponding period last year. Net sales increased by 22% to Rs546.97 crore. JK Cement net sales grew by 16% year-on-year. Revenue growth was led primarily by a 10.1% year-on-year increase and 5.5% quarter-on-quarter increase in blended cement realisations. Operating profit grew by 41%.

Supreme Petrochem chalked out an investment plan of Rs175 crore, spread over two years, for expanding its business by enhancing its capacity and entering new markets. The company has used a part of the funds for increasing the capacity of special polystyrene to 30,000 tonnes per annum. The company has also commenced trial runs on its expandable polystyrene project with a total capacity of 44,400 tonnes per annum at the existing site in Amdoshi in Maharashtra. Its operating profit grew by 35% to Rs37.43 crore and sales surged by 11% for the first quarter of 2011-2012 over the corresponding quarter of the previous year.

Operating profit of Century Plyboards (India) rose by 31% to Rs34.97 crore for the quarter ended 30 June 2011, over the same period in the previous fiscal. Net sales rose by 35% to Rs271.87 crore compared to Rs201.47 crore in the previous corresponding period. The worst performers among the mid-caps were Aptech, Indo Rama Synthetics and NIIT.


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