Indian stocks to open in positive: Monday Market Preview

The US deal on Sunday to hike the nation’s debt ceiling and cut the fiscal deficit is expected put some life into the markets worldwide

The US deal on Sunday to raise the nation’s debt ceiling and reduce the fiscal deficit pushed Asian stocks higher in early trade on Monday, a move which will auger well for the domestic market. Earlier the US markets closed lower on Friday, down for the fifth day in a row, on poor GDP data and the stalemate over the debt deal. The SGX Nifty was up 56.50 points 5,547 in early trade on Monday compared to its previous close of 5,490.50.

Back home, the HSBC Purchase Managers’ Index, a measure of manufacturing growth, for July that will be released today, will give further direction to the market.

The market closed lower last week mainly on account of the 50 basis points hike in key rates by the Reserve Bank of India (RBI). The impasse in the US over raising the debt limit before the 2nd August deadline added to the concerns and the market ended 3% lower.

On Monday, the market closed with modest gains, continuing from the previous week. But the RBI rate hike on Tuesday erased almost all the gains of the previous two days. The cautious outlook expressed by the finance minister and indications of more monetary tightening to come kept the market lower on Wednesday.

Selling in heavyweights led the indices lower on Thursday. The losses were trimmed on Friday, but the market closed in the negative for a fourth consecutive day. The Sensex lost 525 points during the week, to end at 18,197, and the Nifty finished at 5,482, a loss of 152 points. The market is directionless, with the Nifty expected to trade in the range of 5,440 and 5,540.

Markets in Asia were trading in the positive following a deal on Sunday to raise the US debt ceiling and cut its fiscal deficit.

In economic news, China’s factory sector recorded its weakest activity in 28 months in July as data showed China's official purchasing managers’ index (PMI) dipped to 50.7 in July from 50.9 in the previous month. Besides, South Korea’s consumer price inflation index surged 4.7% in July from a year ago, well above the 4.4% rise that analysts had estimated, and its highest rise since March this year. It remains above 4%, the top of the central bank’s target range.

The Shanghai Composite added 0.05%, the Hang Seng jumped 1.34%, the Jakarta Composite surged 1.18%, the KLSE Composite gained 0.54%, the Nikkei 225 climbed 1.84%, the Straits Times rose 0.74%, the Seoul Composite advanced 1.71% and the Taiwan Weighted was 0.34% higher in early trade.

In the US, leaders of the Republican and Democrat parties on Sunday reached an agreement that will reduce the US deficit and avoid a default. Congressional leaders reached an agreement to raise the debt ceiling by at least $2.1 trillion, sufficient to serve the nation’s needs into 2013. They are also working out a deal to cut $917 billion in spending over a decade, raising the debt limit initially by $900 billion.

Earlier last week, Wall Street closed lower on Friday for the fifth day in a row on a late sell-off amid weak economic data and the deadlock over raising the country’s debt limit. US gross domestic product (GDP) for the second quarter came in at a poor 1.3%, lower than the 1.8% expectation by analysts. Besides, the first quarter’s reading of 1.9% was revised to a paltry 0.4%, suggesting that the economy is nearing a double dip despite liquidity from the Federal Reserve and government stimulus.

This added to the gloom after House of Representatives Speaker John Boehner failed to garner enough support for his plan to raise the debt ceiling before Tuesday’s deadline.

The Dow declined 96.87 points (0.79%) at 12,143.24. The S&P 500 shed 8.39 points (0.65%) at 1,292.28 and the Nasdaq fell 9.87 points (0.36%) at 2,756.38.

Meanwhile, gold hit another all-time high on Friday as investors sought a safe haven option after weak US economic data led to fears of a possible recession. Gold futures for December delivery surged $15, or 0.9%, to settle at $1,631.2 an ounce, after trading in the range of $1,613 to $1,637.50 on the Comex division of the New York Mercantile Exchange, whereas the spot gold prices added $10 to $1,627.20 an ounce.

Back home, Iran on Sunday said a payment row over crude exports to India had been resolved after Indian refiners began paying for the oil they buy through a Turkish bank.

Refiners such as Mangalore Refinery and Petrochemicals (MRPL) have opened rupee accounts in the New Delhi branch of Union Bank of India, which will route euro payments to state-owned Turkiye Halk Bankasi (Halkbank) in Istanbul. Halkbank will then transfer that money to the account of NIOC.

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Bulls flatter to deceive; fail to hold Nifty above trendline resistance on weeklies

It has been a treacherous market for traders in the last few weeks and a breach of either 5,468 or 5,644 points will tilt the balance in the immediate short term

S&P Nifty close: 5,482




Market trend

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

The bulls barely managed to close the Nifty above the crucial trendline resistance of 5,655 points (as mentioned last week) for a single session, but the 50 basis point hike by the Reserve Bank of India saw them surrender this advantage meekly. In a week of volatile trading, the Nifty ended a whopping 152 points (-2.70%) lower. The volumes were also significantly higher during the fall which is a cause of concern for the bulls.

The sectoral indices leading the decline were BSE Reality (-7.39%), BSE Capital Goods (-5.22%), BSE Metal (-5.05%), BSE Power (-4.44%), BSE Oil&Gas (-4.24%) and BSE Bankex (-3.57%), whereas BSE Teck (+0.12%), BSE Health (+0.04%) and BSE FCMG (-0.41%) were outperformers.

The Histogram MACD has remained above the median line, despite the sharp fall of last week, implying that the intermediate term bias is sideways at the 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).

Last week's decline has resulted in the Nifty breaching the 20wema mark pegged at 5,581 points, thus confirming our fears that the failure to take out the resistance line after bouncing from this average would nullify the bulls efforts. The Fibonacci retracement levels of the recent rise from 5,195-5,740 are 5,532 (38.2%, already completed), 5,468 (50% also completed) and 5,403 (61.8%), and these are the support levels to watch out for in corrections. The trendline support as depicted in the weekly chart (in black, pegged at 5,450 points) has moved up to 5,468 points. 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 below 5,546 points (pivot) the bears have the advantage.
  •  Support levels are pegged at 5,389 and 5,298 points.
  •  If the S&P Nifty holds above the 5,546 points level in close, it could reach 5,638 or 5,794 points.

Strategy
The bulls have failed to push the Nifty above the resistance line (in purple, pegged at 5644 points), and they are under pressure to hold it above the trendline (in black), otherwise the bears will wrest the advantage. The stop loss on longs has moved up from 5,450 to 5,468 points this week.  

It has been a treacherous market for traders in the last few weeks, and a breach of either 5,468 or 5,644 points will tilt the balance in the immediate short term. However, one thing is certain, that the bulls are with their backs against the wall and they will have to defend the trendline support (in black) on the weekly charts. As we said last week "it's back to deuce".

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

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Weekly Market Report: Market directionless

Nifty to remain range-bound between 5,440 and 5,540

The market closed lower this week mainly on account of the 50 basis points hike in key rates by the Reserve Bank of India (RBI). The impasse in the US over raising the debt limit before the 2nd August deadline added to the concerns and the market ended 3% lower.

On Monday, the market closed with modest gains, continuing from the previous week. But the RBI rate hike on Tuesday erased almost all the gains of the previous two days. The cautious outlook expressed by the finance minister and indications of more monetary tightening to come kept the market lower on Wednesday.

Selling in heavyweights led the indices lower on Thursday. The losses were trimmed on Friday, but the market closed in the negative for a fourth consecutive day. The Sensex lost 525 points during the week, to end at 18,197, and the Nifty finished at 5,482, a loss of 152 points. The market is directionless, with the Nifty expected to trade in the range of 5,440 and 5,540.

The BSE Realty index (down 7%) and the BSE Capital Goods index (down 5%) were the major losers in the sectoral space, while the BSE TECk and the BSE Healthcare ended unchanged. There were no sectoral gainers in the week.

The top Sensex gainers on a weekly basis were Reliance Communications (up 9%), Bharti Airtel (up 6%), Maruti Suzuki (up 4%) and Bajaj Auto (up 1%). The losers were led by Jaiprakash Associates (down 11%), BHEL, Reliance Infrastructure, Jindal Steel & Power (down 7% each) and State Bank of India (down 6%).

The main gainers on the Nifty were RCom (up 8%), Bharti Airtel (up 6%), Maruti Suzuki (up 4%), Axis Bank (up 3%) and ACC (up 2%). The major losers on the benchmark were Jaiprakash Associates (down 12%), IDFC (down 11%), Kotak Mahindra Bank (down 8%), BHEL and Reliance Infra (down 7% each).

Following the RBI's rate hike, retail home, auto and personal loans as well as corporate borrowings are expected to cost more. Expectedly, industry expressed its disappointment over the sharp increase in interest rates, saying the move would harm investment sentiment.

Food inflation fell to a 20-month low of 7.33% for the week ended 16th July. The decline could also be attributed to the high 18.56% figure of the corresponding year-ago period, dubbed as the 'high base effect'. The latest figure is the lowest since separate data for food inflation was first released in November 2009.

The moderation in food inflation is expected to come as a relief for the government and the Reserve Bank of India (RBI), which has repeatedly hiked key rates to tackle inflationary pressure.

According to data released on Friday, eight core infrastructure industries expanded by 5.2% in June as against 4.4% in the same period last year. The expansion was attributed to healthy growth of electricity and steel, which grew by 8.2% and 12.5% in June from 3.8% and 4.3% in the corresponding month last year. However, overall in April-June 2011, the growth of core industries slowed down to 5% from 6.8% in the previous corresponding quarter.

On the corporate front, the Competition Commission of India (CCI) has cleared Reliance Industries' (RIL) buyout of Bharti group's 74% stake in insurance joint ventures (JVs) with AXA of France. Once the deal materialises, RIL and its subsidiary Reliance Industrial Infrastructure (RIIL) would own 57% and 17% respectively in both the insurance companies and would become AXA's partners in India.

More than three weeks after the Cabinet Committee on Economic Affairs (CCEA) gave its conditional nod to the $9-billion Cairn-Vedanta deal, the oil ministry on 26th July sent a formal letter to the companies informing them of the decision. The government's okay to the transaction is subject to Cairn, or its successor, agreeing to treat royalty payments on the Rajasthan oilfields as recoverable from oil sales. Also, Cairn India will have to withdraw the arbitration it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields.

On the global front, the Senate on Friday rejected House Speaker John Boehner's debt-limit plan, hours after the House had passed it. The House now plans to vote on Democratic Senator Harry Reid's plan on Saturday, in the hope that it would pave the way for a bipartisan compromise on the debt ceiling and stave off a default. Even if a late deal is struck, the US risks losing its top-notch AAA credit rating.

World leaders are appalled by the state of affairs in Washington and World Bank president Robert Zoellick said on Friday that the US was playing with fire.

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