Market to move in a range: Weekly Market Report

Nifty to move between 5,500 and 5,700

Optimism associated with the Greek government securing a crucial vote of confidence for its austerity plan, a necessity to secure a fresh bailout, led the global and Indian markets higher during the week. The domestic market gained 3% this week, making the second weekly gain in succession. However, overall in the April-June quarter the market lost 3%.

Gains in the oil & gas sector, after the government hiked retail fuel prices on 24th June, led to a positive close on Monday. Riding on positive sentiment, the market added modest gains on Tuesday. The positive developments in Greece led the market higher for the next two days.

The market settled lower on Friday, led mainly by huge losses in Reliance Industries. The Sensex closed the week up 522 points at 18,763 and the Nifty settled 156 points higher at 5627. The Nifty is likely to move sideways in a range of 5,500 and 5,700.

BSE Fast Moving Consumer Goods and BSE Realty (up 4% each) were the top sectoral gainers, while BSE Oil & Gas was flat. There were no losers in the sectoral space.

Hindalco Industries (up 8%), Sterlite Industries, State Bank of India (up 6% each) BHEL and HDFC (up 5% each) were the major gainers on the Sensex. On the flip side, Bharti Airtel (down 2%) and Reliance Industries (down 1%) were the main losers this week.

For the period between 1 April 2011 and 30 June 2011, Hindustan Unilever (up 20%) and Hero Honda (up 18%) were the best performers, whereas Reliance Infrastructure (down 22%) and DLF (down 21%) were the biggest losers.

Food inflation fell to a one-and-a-half month low of 7.78% for the week ended 18th June, with vegetables, pulses and potatoes cheaper. In the previous week, food inflation as measured by the Wholesale Price Index stood at 9.13%. In the comparable period last year it was over 20%.

The latest numbers on price rise of food items are the lowest since the week ended 7th May, when inflation was at 7.47%.

On the other hand, the HSBC Purchasing Managers' Index (PMI)-a headline index to measure the overall health of the manufacturing sector-posted 55.3 in June, down from 57.5 in May, and the slowest since September 2010.

June data showed a substantial rise in input costs for Indian manufacturers, driven by higher prices for raw materials. Output prices also increased at an above average rate, but the latest increase was the weakest in seven months as pricing power was restricted by strong competition for new business.

On the corporate front, the government has given its approval to Cairn Energy to sell a stake in its Indian unit to Vedanta Resources, subject to new riders. The Cabinet Committee on Economic Affairs headed by prime minister Manmohan Singh approved the sale with the preconditions that Cairn, or its successor, has to treat royalty payments on the Rajasthan oilfields as recoverable from oil sales.

Also, Cairn India will have to withdraw arbitration proceedings it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields.

On Friday, UK-based Vodafone agreed to pay over $400 million more to its Indian partner Essar for buying its 33% stake in the joint venture Vodafone-Essar. With this, Essar closed the deal to sell its stake at $5.46 billion, as against $5 billion decided earlier.

Essar held a 22% stake in the joint venture through its Mauritian arm and the remaining 11% through an Indian subsidiary.

On the global front, the Greek government won a vote of confidence in parliament with more than half the 300 MPs backing the socialist government of prime minister George Papandreou. The result clears the way for a new financial bailout for the debt-ridden European nation.

China's official purchasing managers' index (PMI) fell to 50.9 in June, down 1.1 point from 52 in May. The continuing drop in PMI implies that China's economic growth will continue to slow down on the back of the rate-tightening initiatives by the government.


Bulls cross some crucial hurdles as Nifty nearly touches trendline resistance; 5,700-5,770 bottleneck remains

The Bulls have succeeded in warding off the bear threat. But as the market nears crucial resistance levels, we could see some profit taking that could result in the Nifty correcting

S&P Nifty close: 5,627.20

Market trend

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

The S&P Nifty gained (2.85%) this week as the Bulls succeeded in pushing the Nifty through some crucial resistance levels. The volumes were marginally better than the previous week. The sectoral indices which led the recovery were BSE FMCG (up 4.24%), BSE Reality (up 4%), BSE Metal (up 3.94%), BSE CGS (up 3.93%), BSE Bankex (up 3.71%) and Power (up 3.37%), while the laggards were BSE CDS (up 1.59%) and BSE Oil & Gas (down 0.05%).

One can see from the weekly chart (above) that the S&P Nifty has closed above the recent high of 5,605 points, thus putting an end to the short term decline, at least for the time being. Despite the smart recovery, the histogram MACD continues to be below the median line, implying that the intermediate trend is still down or at best may turn into a sideways trend. Though, it's a bit early at this stage to conclude this.

The sharp rise witnessed in the previous week due to desperate bear covering, saw the Nifty complete the 50% (5,570) and 61.8% (5,658) retracement levels of the fall from 5,944-5,195 points. Contrary to my expectations (of the Nifty retracing the decline from 5,944 points) 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 5,688 (50% of 6,181-5,195, already completed), 5,767 (50% of 6,338-5,195), 5,804 (61.8% of 6,181-5,195) and 5,902 (61.8% of 6,338-5,195).

We saw the Nifty close above the 20 wema pegged at 5,580 points, the first major hurdle for it to cross, but the trendline resistance (in purple) pegged at 5,725 points is the next hurdle to watch out for from an intermediate term perspective.

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

  •  As long as the S&P Nifty remains above 5,589 points (pivot) the Bulls hold the edge.
  • Support levels are pegged at 5,472 and 5,318 points.
  • As long as the S&P Nifty stays above the 5,589 points level at the close, it could reach 5,747 or 5,861 points.

The Bulls have succeeded in warding off the bear threat which was looming large a couple of weeks ago. However, as the market nears crucial resistance levels, we could see some profit taking by traders which could result in the Nifty correcting the recent rise from the low of 5,195 points.

We saw the Nifty exceed our maximum expectations of hitting 5,658 points (it reached 5,705 points), but fell marginally short of the trendline resistance mentioned. For the Bulls to maintain their advantage of the last two weeks they must defend 5,420 points (in lows), this week.

At this moment the Bulls certainly hold the edge, but traders should be cautious in the 5,700-5,770 points range, as this is an area of resistance where the Nifty could become overbought in the short term. For those looking for buying opportunities, wait for a dip to the gap area between 5,558-5,566, but a decline close to the 5,420-5,450 range would be the ideal entry point. One thing is certain, that the onus has now shifted on the Bears to defend their castle.

(Vidur Pendharkar works as a consultant technical analyst and chief strategist at


Vodafone buys Essar's 33% stake for $5.46 billion

Essar, which had held 22% stake in the joint venture through its Mauritian arm and the remaining 11% through Indian subsidiary, will now receive $5.46 billion as against $5 billion decided earlier

New Delhi: Revising the deal, UK-based Vodafone today agreed to pay over $400 million more to its Indian partner Essar for buying its 33% stake in the joint venture (JV)Vodafone-Essar, reports PTI.

With this, Essar closed the deal to sell its 33% stake at $5.46 billion as against $5 billion decided earlier.

Essar had held 22% stake in the joint venture through its Mauritian arm and the remaining 11% through Indian subsidiary.

This means that Vodafone would take a further hit of over $400 million to buy out Essar's stake.

"Under the agreements signed in Port Louis, Mauritius, Vodafone has made a net payment of $3.32 billion, after deduction of withholding tax of $0.88 billion," Essar said in a statement.

Vodafone and Essar have paid the tax even as both the parties continue to believe that no tax is due on this transfer. It was viewed as prudent to deduct and pay withholding tax on a without prejudice basis and they would claim a refund after following due process.

Vodafone also withdrew its tax dispute petition in the Authority for Advanced Ruling (AAR).

With this the 22% stake works out to be $4.2 billion as against $3.8 billion decided earlier. The shares have been transferred to Vodafone.

Similarly, the value for the 11% stake held by Essar through Essar Communications Holdings has now been revised to $1.26 billion compared to $1.20 billion decided earlier. The transfer of shares would be completed after obtaining all necessary approvals expectedly by 15 February 2012.

Commenting on the deal, which has given over $400 million dollars extra to the Ruias, Essar Group chairman Shashi Ruia said, "We were one of the early entrants in the telecom space in 1995 and we are really pleased that Vodafone-Essar has grown to become one of the premier telecom companies in the country with over 140 million subscribers."

"We have also enjoyed an extremely successful relationship with Vodafone and wish them success in the future."

Both the parties had recently witnesses a prolonged legal battle as Vodafone was against Essar going for reverse listing of its stake, while the Ruias had said that it was necessary to arrive at true value of its holdings in the JV.

Vodafone had entered the JV in 2007 after it bought majority stake of Hutchison and has been facing a tax liability of nearly $2.6 billion as the case proceedings are going on.


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