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Sideways move indicated: Weekly Market Report

A close above 5,400 on the Nifty essential for upmove

Concerns about economic reforms being impacted after the Congress party lost in the state assembly elections and the unending Eurozone debt crisis kept the market in check this week. While the Reserve Bank of India cut the CRR by 75 basis points after the market closed on Friday, investors speculate that the finance minister may announce a ‘populist’ budget next week in a bid to garner support.

Political concerns kept the market lower on Monday while dismal global cues and a rout for the Congress party in the state polls saw the market closing sharply lower on Tuesday. The market traded lower on Wednesday but smart gains towards the end of the session enabled the market recover from the day’s lows, albeit it was a flat close with a negative bias. Refreshed after a day’s holiday, the market notched splendid gains on Friday on a better-than-expected response to the Greek bond swap deal.

The Sensex closed 134 points lower (-0.76%) at 17,503 and the Nifty finished the week at 5,334, down 26 points (-0.48%). On Friday, the Nifty breached the resistance of 5,245 and 5,285 in early trade itself. However, the benchmark should close above 5,400 over the next few days to maintain those gains.

The top sectoral gainers were BSE Consumer Durables (up 2%) and BSE Auto (up 1%) while BSE Metal (down 4%) and BSE Oil & Gas (down 3%) were the major losers in the week.

Tata Motors (up 4%), ITC (up 2%), Maruti Suzuki, ICICI Bank and Coal India (up 1% each) were the key gainers on the Sensex. The losers were led by Hindalco Industries (down 9%), Sterlite Industries (down 8%), BHEL, GAIL India (down 6% each) and Reliance Industries (down 5%).

The Nifty toppers were Reliance Power (up 7%), HCL Technologies, Tata Motors (up 5% each), Jaiprakash Associates and Axis Bank (up 4% each). Hindalco Ind (down 9%), Sterlite Ind (down 8%), SAIL (down 7%), BHEL and GAIL India (down 6% each) settled at the bottom of the index.

The RBI on Friday slashed the CRR rate by 0.75 percentage points, a step that will infuse Rs48,000 crore into the economy. The reduction in the CRR, which comes into effect from Saturday, is aimed at reducing the liquidity deficit (which) is expected to increase significantly during the second week of March on account of to advance tax outflows and the usual frontloading of cash balances by banks with the RBI.

India’s exports recorded the slowest pace of growth in three months at 4.3% year-on-year at $24.6 billion in February. In sharp contrast, imports grew at a faster rate of 20.6% to $39.8 billion in the month under review, translating into a trade deficit of $15.2 billion. Expressing concerns over the ballooning trade deficit, commerce secretary Rahul Khullar said that since October last exports are decelerating faster than imports.

In a stellar stock market debut, the country’s largest commodity exchange Multi Commodity Exchange (MCX) on Friday listed with a 34% premium over its initial public offer (IPO) price of Rs1,032 and finally settled 26% higher at Rs1,297.05 a share on the Bombay Stock Exchange (BSE).

On the NSE, the stock ended at Rs1,294, up 25.39%. The company had offered to list its shares on the BSE only, but NSE proactively decided to add MCX shares to its list of securities admitted for trade.

On the international front, Greece has managed to pushed through the bond swap offer, a requirement for its 130 billion ($172 billion) bailout deal with bondholders representing 83.5% of the value of its bonds taking part. The government will now activate Collective Action Clauses on those who held out, raising participation to 95.7%.

Meanwhile, US employment grew for a third month in February as employers added 227,000 jobs to their payrolls, the Labor Department said. However, the unemployment rate was steady at a three-year low of 8.3%.

User

Nifty recovers after hitting 5171, but 5455 and 5516 are crucial resistance levels

With the Railway Budget, the RBI policy review and the Union Budget due this week, volatility is expected to be high. However if the above mentioned resistance levels are not taken out, all these events will turn out to be damn squibs

S&P Nifty close: 5333.55    

 
Market Trend

Short Term: Sideways       Medium Term: Sideways        Long Term: Down


The Nifty opened flat but continued to fall and touched the S1 level of the week from where it recovered on short covering as well as speculative buying. This saw the Nifty close the week with a marginal loss of 0.48%. The sectoral indices which outperformed were BSE Consumer Durables (+1.77%), BSE Auto (+1.62%) and BSE Bankex (+0.54%) while the gross underperformers were BSE Metal (-3.92%), BSE Oil & Gas (-3.17%), BSE Power (-2.48%) and BSE Capital Goods (-1.09%).   

The weekly histogram MACD continued to move down but is above the median line indicating that a correction is on. A pullback did materialize from lower levels as was expected last week. Volumes were lower as compared to the previous week during the decline which also supports the correction theory as of now.

Here are some key levels to watch out for this week
  • As long as the S&P Nifty stays above 5,295 points (pivot) the bulls hold a slight edge in the near term even though the intermediate trend seems to be turning sideways.
  • Support levels in declines are pegged at 5,209 and 5,085 points.
  • Resistance levels on the upside are pegged at 5,420 and 5,506 points.
Some Observations
1.    The Nifty fell below the 38.20% retracement of the entire fall from 4,588-4,629 points and recovered.
2.    Despite the price being above the weekly averages for six weeks, they still continue to be negatively phased.
3.    The elections results proved to be a damn squib as was envisaged at it will be interesting to see whether the Budget turns out to be the same!

Strategy
Even though the market recovered from lower levels the 5,455 and 5,516 points are important resistance levels to watch out for. Unless and until these are taken out the bulls are unlikely to make any headway. With the Railway Budget, the Reserve Bank of India (RBI) policy review and the Union Budget due this week, volatility is expected to be high. However if the above mentioned resistance levels are not taken out, all these events will turn out to be damn squibs. Keep a strict stop loss below 5,295 on longs positions if any. The international markets are likely to fizzle out mid week and hence are unlikely to aid the bullish sentiment.

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

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