Headed higher: Weekly Market Report

Nifty likely to rise to 5,700 and beyond

The market closed the week with gains, mainly on some good corporate earnings and on the resolution of the debt problem in Greece, after European leaders approved a second bailout package for the debt-stricken country on Thursday. The market closed the week with a gain of 1%.

Debt problems on both sides of the Atlantic pulled the market lower on Monday. But the global debt issues did not deter investors from pumping in funds into Indian stocks, leading to a higher close on Tuesday. Comments from finance minister Pranab Mukherjee that inflation would remain high till December and weak results from IT major Wipro led to a sharp fall on Wednesday.

Concerns that the Reserve Bank of India (RBI) may hike rates again at its policy review meeting next week and a mixed bag of corporate results, kept the indices in the red for a second consecutive day on Thursday. But the market bounced back on Friday, recovering from the losses of the previous two days.

Overall, the Sensex gained 160 points to close the week at 18,722, and the Nifty finished 53 points higher at 5,634. The market is set on a northward journey with the Nifty likely to go up to 5,700.

In the sectoral space, BSE TECk and BSE Fast Moving Consumer Goods gained 2% each, while BSE Consumer Durables and BSE Healthcare both declined 2%.

The top gainers on the Sensex were Bharti Airtel (up 5%), Infosys, Sterlite Industries, DLF and Tata Power (up 3% each). The losers were led by Tata Motors (down 4%), NTPC (down 3%), Wipro, Reliance Communications and Jaiprakash Associates (down 2% each).

The best performers on the Nifty were Bharti Airtel, GAIL India (up 5% each), Sterlite Industries, Infosys (up 4% each) and Cairn India (up 3%). The main losers were NTPC (down 4%), Tata Motors (down 3%), RCom, Wipro and Dr Reddy's Laboratories (down 2% each).

Food inflation for the week ended 9th July fell to a three-week low of 7.58% on the back of cheaper pulses. Inflation was at 8.31% in the previous week and a high 19.52% in the corresponding week of July 2010. Encouraged by moderation in food inflation, finance minister Pranab Mukherjee expressed the hope that the price situation would improve in the days ahead. Mr Mukherjee said that while the domestic situation on the price front was improving, concerns remain over international issues.

On account of a likely moderation in industrial output, the government has lowered its GDP growth projection for 2011-12 to 8.6%, from the earlier 9%. The finance ministry said there is a slowdown in corporate investment and profits have been affected due to cost escalation of inputs.

While annual indicators of real GDP growth remained positive in 2010-11, there was a 'perceptible slowdown' in terms of quarterly growth rates in the last two quarters. The economy grew by just 8.3% in the third quarter last fiscal and 7.8% in the January-March period, the lowest in five quarters. The economy is estimated to have expanded by 8.5% in the last fiscal.

Among major companies that declared their results during the week, Cadila Healthcare, HDFC Bank, Dr Reddy's, Hero Honda, Indiabulls Financial Services and Axis Bank beat market expectations. On the other hand, Ashok Leyland, Crompton Greaves, Exide Industries, Wipro, Biocon, Zee Entertainment and Jet Airways fell short of expectations.

In corporate news, the Cabinet Committee on Economic Affairs (CCEA) on Friday cleared BP Plc's purchase of a 30% stake in most of Reliance Industries' (RIL) oil and gas blocks, including the showpiece KG-D6 gas fields. The CCEA approved the stake sale for only 21 blocks, as the exploration status in the two remaining blocks is in dispute.

RIL had on 21st February agreed to sell a 30% stake in 23 out of its 29 oil & gas blocks to UK's BP Plc for $7.2 billion, and it may get an additional $1.8 billion if the two explorers find more hydrocarbons.

On the international front, European leaders on Thursday clinched a new rescue plan for Greece involving a 109 billion euro deal, while the European Financial Stability Facility (the Eurozone's bailout fund) will provide loans to Greece at a lower interest rate and for longer maturities.

However, in the US, the government's plan to avoid a debt default hit a roadblock as House Speaker John Boehner broke off negotiations on a broader deal to cut the federal deficit. With the 2nd August deadline to raise the debt ceiling approaching, president Obama has summoned Republican and Democratic congressional leaders for a new round of talks.


Bulls fall just short of pushing the Nifty above the resistance line; only this can provide some impetus

The Bulls have to push the Nifty above the resistance line, or preferably the 5,670 level, on significantly higher volumes, for further upsides

S&P Nifty close: 5633.95

Market trend

SHORT term: Sideways        MEDIUM term: Sideways     LONG term: Up

The Bulls just fell short of pushing the Nifty above the crucial trendline resistance of 5,655 points (as mentioned last week) which would have resulted in providing the much-needed upside momentum.

After yet another see-saw week, the Nifty closed 52 points (+0.95%) higher. Volumes were flat. The sectoral indices which gained were BSE FMCG (+1.74%), BSE Teck (+1.90%) and BSE IT (+1.30%), while the underperformers were BSE CDS (-1.65%), BSE Health (-1.54%) and BSE Auto (-1.49%).

The sustained rise of the last few weeks has resulted in the Histogram MACD staying above the median line, implying that the intermediate term bias has turned sideways if not up at this moment. The Nifty seems to be retracing either the fall from 6,181 or the entire decline from 6,338 points, which gives upside targets of 5,767 (50% of 6,338-5,195 came very close to this), 5,804 (61.8% of 6,181-5,195) and 5,902 (61.8% of 6,338-5,195).

We saw the Nifty bounce after hitting the 20wema and almost hit the resistance line (in purple pegged at around 5,655 points) which has to be crossed for further upsides, otherwise the efforts of the last few weeks will come to naught. The Fibonacci retracement levels of the recent rise from 5,195-5,740 are 5,532 (38.2% already completed), 5,468 (50%) and 5,403 (61.8%), that are the support levels to watch out for in corrections. The trendline support pegged (in black) as depicted in the weekly chart above has moved up to 5,450 points, this week. A breach of this could see the Nifty fall to the 5,300-5,320 range at a fast clip.

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

  • As long as the S&P Nifty remains above 5,604 points (pivot) the Bulls have the advantage.
  •  Support levels are pegged at 5,562 and 5,491 points.
  •  If the S&P Nifty holds above the 5,604 points level in close, it could reach 5,675, 5,717 or 5,804 points.

The Bulls have to push the Nifty above the resistance line (in purple) or preferably the 5,670 level, on significantly higher volumes, for further upsides. The stop loss on longs has moved up from 5,428 to 5,450 points this week. It is a breakpoint that the Bulls have at this moment and they have to capitalise on this, otherwise it will be back to deuce.

(Vidur Pendharkar works as a Consultant Technical Analyst & Chief Strategist, www.trend4casting.com.)


IRDA for more cos to participate in pension market

"More than 90% of all the pensions are actually in the Life Insurance Corporation of India (LIC). There is such a huge concentration in one institution. I think that is a recipe for high risk. Therefore, we must build up mechanisms which allow other companies also to participate actively in the pension market," IRDA chairman, J Hari Narayan, said at an insurance summit in Mumbai

Mumbai: The Insurance Regulatory and Development Authority (IRDA) on Friday said that domination of one company in the pension market could be risky and it was important for other insurance companies to participate actively, reports PTI.

"There is a structural problem that will unwind for the regulator and the industry as a whole, and will affect the country. More than 90% of all the pensions are actually in the Life Insurance Corporation of India (LIC). There is such a huge concentration in one institution. I think that is a recipe for high risk," IRDA chairman, J Hari Narayan, said at an insurance summit here.

"I think it is too much of a risk to be allowed to continue. Therefore, we must build up mechanisms which allow other companies also to participate actively in the pension market," he added.

Mr Narayan further said that pension funds should offer life annuity and companies that sell pension products should have a guaranteed capital.

"I think at the very minimum that every product that is sold as a pension product should have a capital guarantee so that the principal is safe," he said.

Pension plans are estimated to account for about 30% of the life insurance industry's business.

Meanwhile, Mr Narayan said that the regulatory body was working towards creating an exchange for re-insurance, but did not divulge when the mechanism would be in place.

"We have tried to create a platform on re-insurance, which is more transparent and more like a re-insurance exchange. Initial work is going on. What we visualise is that all matters on re-insurance will be routed only through the exchange. The advantage will be that transactions are clear and there cannot be any glitches in terms of the fine print of the policy," he said.

Mr Narayan said the insurance industry was more like a teenager going through exciting times but said there were a few challenges that needed to be addressed.

He said in case of insurance firms floated by banks, the average cost of premium was higher than that of LIC. Though there are some recommendations to allow a bank to have stakes in two insurance firms, he did not agree with this, he said.

"The problem that I have in two insurance companies operating in the same space is the premium is perverse to the bank as to which product they will be selling at branch level.

The perverse incentive at branch level is not correct. And I don't think that is a healthy practice. We cannot be having two across the same space," he said.

Mr Narayan pointed out that banks have huge potential to market insurance products.

"From the 80,000 branches across India, only 7,000 sell insurance policies. The bulk of the branches have not been used for selling insurance. We will be failing in our duty, certainly as a regulator, if we don't enable the greater use of the branch outreach," he said.

On distribution front he said that many agents were not happy as the pay was low, but said it was not possible to increase the commission.

"Is it wise to so largely front load commission? Should we look at flattening the commission differentials? At present, we cannot assess it because we are bound by the present Insurance Act," he said, adding that the amendment bill if passed could bring about some changes.


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