We may now see the market pausing for breath with the support at 5,265
The Indian market closed higher in the truncated week as investor sentiments received a huge boost on Friday following an agreement reached by European leaders to end the two-year debt crisis in the continent. Negative cues like the RBI’s (Reserve Bank of India) 25 basis point (bps) interest rate hike and weekly food inflation touching a six-month high were brushed aside as the indices gained 6% in the week.
The market closed in the positive on Monday, but fears of the RBI hiking key rates on Tuesday capped the gains. Taking the RBI rate hike in its stride, the market closed near the day’s high on Tuesday. A brief muhurat trading session to welcome the Hindu New Year saw the indices closing flat with a positive bias on Wednesday. Resuming trade after the Diwali holiday on Thursday, the indices closed at their highest levels since 3rd August on Friday, on supportive global cues.
The Sensex ended the week at 17,805, up 1,019 points and the Nifty gained 311 points at 5,361. We may now see the market taking a breather with the support on the Nifty at 5,265.
The BSE Metal index (up 9%) and the BSE Realty index (up 8%) were the top gainers among the sectoral gauges while the BSE Consumer Durables index (down 1%) was the lone loser.
The major Sensex gainers were Hindalco Industries (up 17%), Tata Motors (up 16%), Sterlite Industries (up 15%), Jaiprakash Associates (up 13%) and Tata Steel (up 11%). State Bank of India (down 2%) and HDFC Bank (down 1%) ended at the bottom of the index.
In the Nifty list, Hindalco Ind (up 17%), Reliance Infrastructure, Tata Motors (up 16% each), Sterlite Ind (up 15%) and Jaiprakash Associates (up 13%) were the major gainers. The losers were led by Punjab National Bank, SBI (down 2% each), BPCL and HDFC Bank (down 1% each).
The RBI, in its quarterly policy review on Tuesday, raised key rates by 0.25%. This is the 13th time since March 2010 that the central bank has hiked rates as part of its move to control spiralling inflation. The RBI also deregulated savings bank interest rates and indicated that it may not increase rates in its review in December.
Following the deregulation of the savings bank rate, private sector lender Yes Bank responded by increasing its saving rate by a hefty 2% while SBI indicated that it is likely to increase the rate by up to 1.25%.
Weekly food inflation for the week ended 15th October was at 11.43% over 10.60% in the previous week. The last time that food inflation stood this high was on 9th April when it was recorded at 11.53%.
“With vegetable prices unlikely to ease until after the festive season, food inflation may remain elevated in the remaining weeks of October,” ICRA economist Aditi Nayar said.
In international news, European leaders reached an agreement on dealing with the continent’s debt crisis early Thursday, following days of negotiations. As part of the deal, banks with Greek debt will take a voluntary 50% cut in the face value of their bond. It will reduce Greek debt levels to 120% of GDP from around 160% of GDP by 2020.
Also, the 250 billion euro that remains of the 440-billion euro bailout fund, following the support given to Greece, Ireland and Portugal, will be leveraged up to five-fold to provide guarantees of around 1 trillion euro.
Japanese factory output fell 4% in September, a sign that the economy is yet to show firm signs of recovery following the devastating earthquake in March this year. Industrial output had registered a 0.6% rise in August.
The bulls have put the bears under pressure and needn’t get worried as long as the 5,164 level holds in any correction
S&P Nifty close: 5,360.70
Short Term: Upwards; Medium Term: Sideways; Long Term: Sideways
The Nifty opened on a better note for the week and gave the break-out (above 5,169) which was becoming largely overdue on the very same day as the announcement of a 25 basis points (bps) hike in interest rates by the RBI (Reserve Bank of India). The importance of this level which we have been harping on for the past month or so—was vindicated by the resultant sharp rise once the bulls broke above this. A trending move materialised with huge volatility (more than anticipated) which was envisaged in the last piece. The Nifty finally closed a whopping 311 points (+6.15%) higher. The sectoral indices which outperformed the market were BSE Metal (+9.39%), BSE Auto (+8.17%) and BSE Reality (+8.48%) while the ones which grossly underperformed were BSE CDS (-1.08%) and BSE Bankex (+2.51%).
The weekly Histogram MACD remaining above the median line played its role in the short-term trend turning up and one has to see whether this corrective rise lasts for the next 4-6 weeks, albeit with some hiccups in between.
Here are some key levels to watch out for this week.
The bulls have put the bears under pressure and needn’t get worried as long as the 5,164 level holds in any correction.
1. Support in declines is pegged from the recent tops of 5,168-5,169 points.
2. Further support in declines will be provided by the “gap area” between 4,827-4,861 points.
3. The 5,169 level is the crucial resistance area to watch out for this week.
4. Resistance will be pegged from resistance line (in lavender color) which is pegged in the 5,420-5,450 area (depending on the tops selected).
5. A small top is likely during the first couple of days this week after which a dip could materialize.
Last week’s sharp rise has succeeded in closing the “gap area” between 5,229-5,323 points, which is a good sign for the weeks ahead as long as corrections don’t go much below the 5,165-point level. The Nifty has already completed the 38.2% retracement (5,338 points) of the fall from 6,338-4,720 points and the higher retracement levels of 50% (5,529) and 61.8% (5,720 points) will act as resistance levels in the current corrective rise. From a very short term trading perspective, the “resistance line” pegged between 5,420-5,450 points assumes importance. Therefore, caution is advocated in the first couple of days this week where one should take some profits off the table and wait for a small correction before making a fresh entry.
(Vidur Pendharkar works as a Consultant Technical Analyst & Chief Strategist, www.trend4casting.com).
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