Minor gains possible: Weekly Market Report

Medium-term trend shows a negative bias still

Lingering concerns about the European debt crisis along with weak corporate results of domestic companies and signs of a slowdown in the economy resulted in the market falling 5% and the benchmarks settling lower on all five trading days of the week. The 5.09% weekly closing loss on the Nifty was the maximum since the week ended 30 October 2009.

Paring all its gains in post-noon trade on weak European cues, the market closed lower on Monday. Weak corporate earnings were seen as the main cause of the decline on Tuesday. The poor show continued on Wednesday driven by a negative trend in the Asian markets. Despite food inflation for the first week of November falling by more than a percentage point, Spanish and French government bond yields touching their euro-era highs led to the market decline on Thursday. While the indices made a smart recovery from their intra-session lows on Friday, the market settled low for the seventh day in a row.

Overall, the Sensex tumbled 821 points to close the week at 16,372 and the Nifty declined 263 points to 4,906. We may see the Nifty making a small bounce back, which will not be sustained for too long. The medium-term trend shows negative bias.

The market slide resulted in all sectoral gauges ending lower. The BSE Realty index (down 11%) and BSE Capital Goods index (down 10%) were the top losers while BSE Healthcare and BSE Healthcare (down 2% each) suffered the least.

In the Sensex space, Cipla (up 9%) and Bharti Airtel (up 1%) were the top gainers whereas Jaiprakash Associates (down 18%), BHEL (down 15%), Mahindra & Mahindra (down 12%), Maruti Suzuki and DLF (down 11% each) were the major losers.

The Nifty gainers were led by Cipla (up 9%) and Hero MotoCorp (up 1%). The declining stocks were led by JP Associates (down 18%), BHEL (down 15%), Reliance Communications (down 13%), M&M (down 13%) and Siemens (down 12%).

Headline inflation hovered stubbornly near the double-digit mark in October, rising marginally to 9.73% from 9.72% in September. This, along with industrial output for September plunging to a two-year low of 1.9%, is expected to put pressure on the government to take a relook on the harsh monetary policy.

Meanwhile, giving some respite to the policymakers, food inflation eased to 10.63% for the week ended 5th November from 1.81% in the previous week. Concerned over the inflationary spiral, the government has said it is taking steps to remove supply bottlenecks and expects prices to ease from December.

Global research firm Macquarie has downgraded India’s economic growth forecast for the next fiscal to below 7% and has warned that the country’s gross domestic product (GDP) expansion outlook is on a ‘slippery slope’. Macquarie has cited “lack of policy reforms” and political compulsions as key reasons for the downgrade of its GDP growth projection for the fiscal FY12-13, beginning April 2012, to 6.9%, from 7.9% previously.

However, it has maintained its GDP growth projection for the country in the current fiscal, ending March 2012, at 7.4%.

On the global front, focus will be on the US as well as Europe as policymakers on both sides of the Atlantic struggle with debt and deficit. A high-profile congressional effort to cut US budget deficits appeared near collapse Friday as Democrats rejected a scaled-back proposal from Republicans that contained few tax increases.

European officials, meanwhile, have so far failed to convince investors that they have a plan to stop the contagion from their sovereign debt crisis. Italian, French and Spanish bond yields were under pressure earlier this week as markets looked for action from European leaders.


Magnitude of the fall unexpected, but a temporary bottom likely this week

The bears have made inroads in the bull camp and one has to see how the bulls handle the pressure in the F&O expiry week. The 5,144-5,185 points range will now prove to be a tough nut to crack in contra trend rallies in the very short term

S&P Nifty close: 4905.80

Market Trend

Short-term: Down    Medium-term: Sideways     Long-term: Sideways

The Nifty opened better for the week but started declining from day one instead of 17th which was our anticipation in the last week’s strategy. It broke through the crucial support level of 5,169 points which triggered bull liquidation as well as bear hammering. The Nifty lost a whopping 263 points (-5.09%) on significantly higher volumes. The sectoral Indices which outperformed the market were BSE TECk (-2.08%), BSE Healthcare (-2.12%) and BSE IT (-2.26%) while the ones which underperformed were BSE Reality (-11.19%), BSE Capital Goods (-9.99%), BSE Power (-9.59%), BSE Metal (-7.43%) and BSE Oil & Gas (-6.86%). 

The weekly Histogram MACD which had turned down last week, fell sharply, but is still above the median line. This implies that though the bulls have frittered away the advantage their hopes have not been totally extinguished. However, a big effort in now required on their part to stem the rot as well as avert the catastrophe, at least for the time being. With the last week’s effort the bears have raised a few questions which now the bulls need to seriously address.

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


  • As long as the S&P Nifty stays below 4,990 points (pivot) the bulls will remain under pressure.
  • Support levels in declines are pegged at 4,752 and 4,600 points.
  • Resistance levels on the upside are pegged at 5,144 and 5,382 points.

Some Observations
The bulls have surrendered the advantage last week and the onus is now on them to take the battle to the bear camp.
1.    Resistance in rallies is pegged from the recent tops of 5,168-5,169 points.
2.    Last week the Nifty got support in the “gap area” between 4,827-4,861 points which is now crucial.
3.    The 5,380 level is the crucial resistance level (trendline in lavender) to watch out for this week.
4.    A temporary bottom is envisaged just prior to the current F&O expiry and a subsequent recovery.

The bears have made inroads in the bull camp and one has to see how the bulls handle the pressure in the F&O expiry week. A temporary bottom is expected around the 23rd which could trigger off some short covering. The magnitude of this recovery will depend upon whether the recent lows around 4720 hold. Contrarians with an iron will can do some bottom fishing near the above mentioned date for a contra trend rise only. The 5,144-5,185 points range will now prove to be a tough nut to crack in contra trend rallies in the very short term.
Vidur Pendharkar works as a Consultant Technical Analyst & Chief Strategist, www.trend4casting.com


Finance ministry sanctions additional Rs15,000 crore fuel subsidy

The additional compensation sanctioned on 11th November is over and above the Rs15,000 crore sanctioned for meeting losses of first quarter ending 30th June, a top official of the oil ministry said

New Delhi: The finance ministry has sanctioned an additional Rs15,000 crore to partially compensate state-owned oil firms for losses they incur on selling fuel below cost, reports PTI.

“The ministry of finance has sanctioned an additional compensation of Rs15,000 crore on 11th November,” a top oil ministry official said, adding this compensation is over and above the Rs15,000 crore sanctioned for meeting losses of first quarter ending 30th June.

Oil marketing companies (OMCs) have reported an under-recovery (revenue loss) of Rs21,374 crore in the July-September quarter. Of this, one-third or Rs7,124 crore would be made good by upstream firms like Oil and Natural Gas Corporation (ONGC) and Oil India (OIL).

The finance ministry was asked to make good the rest Rs14,250 crore.

“The finance ministry has issued the sanction letter and the actual cash would be given the oil companies after the Parliament approves supplementary demands for grants in the Winter session of Parliament beginning 22nd November,” he said.

Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) had lost Rs43,526 crore in April-June quarter on selling diesel, domestic LPG and kerosene at government controlled rates which are way below cost.

The oil ministry had asked for Rs29,000 crore cash subsidy for Q1 but got only Rs15,000 crore.

In the April-September period, the three firms lost Rs64,900 crore on selling the three fuels below cost.

The three firms are currently losing Rs11.44 per litre on diesel, Rs26.94 per litre on kerosene sold through the public distribution system (PDS) and Rs260.50 per 14.2-kg LPG cylinder supplied to domestic households for cooking purposes.

“The oil marketing companies are currently incurring a daily under-recovery (revenue loss) of about Rs360 crore on sales of diesel, PDS kerosene and domestic LPG,” he said.

If the prices are not revised, the oil firms will end the fiscal with a total revenue loss of about Rs130,000 crore.

“Financial condition of oil companies is very fragile...

We have been pleading for higher government compensation to the oil marketing companies,” he said.

The oil ministry, he said, wanted the upstream share be limited to historic one-third or 33.33% of the total under-recovery or revenue loss. The finance ministry, however, wants the contribution by ONGC, OIL and GAIL India to increase to at least 50%.

“If we can confine the burden (of upstream firms) to 33.33%, we will be lucky,” he said.

In first two quarters, ONGC, OIL and GAIL bore roughly one-third of the Rs64,900 crore under-recovery. With the latest sanction, the government has agreed to give Rs30,000 crore and the rest was absorbed by retailers.

The official said fuel retailers lost Rs37,719 crore on selling diesel in the April-September period, Rs13,361 crore on PDS kerosene and Rs13,820 crore on domestic LPG.

The cost of the basket of crude oil that India buys averaged $110 per barrel in the current fiscal, as against an average $85.09 a barrel in the first fortnight.

The rupee has depreciated from Rs44.37 to a US dollar in April to around Rs50 this month. “The under-recoveries of oil marketing companies on sale of diesel, PDS-kerosene and domestic LPG increase by about Rs8,000 crore annually on account of every Re1 depreciation,” the official said.

The fall in the value of rupee against the dollar increases the cost of imported crude oil. India is dependent on imports to meet 79% of its oil needs.

Without a price revision, the three firms are projected to lose Rs130,000 crore in revenues on the three products in the full fiscal year, the official said adding oil PSUs were borrowing heavily to meet the shortfall in revenue.

“Borrowings have reached an unprecedented level of Rs131,177 crore necessitated by the need of working capital for payment of imported crude,” he added.


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