More lows ahead: Weekly Market Report

Nifty may see the level of 5,195

The market closed flat with a negative bias as the status quo by the Reserve Bank of India (RBI) by keeping key rates unchanged and the budget, which estimated a higher fiscal deficit for the next fiscal and a hike in service tax, put off investors.

The Sensex closed 37 points (0.21%) lower at 17,466 and the Nifty ended the week at 5,318, down 16 points or 0.29%. Friday's market move was one of the signs of increasing pressure for selling. If the bulls don't make a comeback from the current level, we may Nifty headed towards 5,195.

The RBI's CRR cut on Friday saw a positive opening on Monday but nervousness ahead of the Union Budget resulted in the market closing with modest gains. Sustained buying by institutional investors and a positive global trend led the market higher on Tuesday. A rise in headline inflation for February overshadowed the Railway Budget leading to a positive close, but with a diminishing strength.

A status quo by the central bank in its quarterly policy review on Thursday resulted in the market snapping its four-day gaining streak and closing in the negative. Worries about the high fiscal deficit, as highlighted by the finance minister in his Budget speech, and a rise in service tax led the market lower on Friday.

In the sectoral space, BSE Fast Moving Consumer Goods gained 3% and BSE Auto rose 1% while BSE Consumer Durables and BSE Realty were down 2% each.

Among Sensex stocks, GAIL India (up 5%); Hindalco Industries, ITC (up 4% each), Tata Motors (up 3%) and Hero MotoCorp (up 2%) were the top gainers. The losers were led by Sun Pharma, DLF, Bharti Airtel (down 4% each), ONGC and TCS (down 3% each).

The top five stocks on the Nifty were GAIL India, Hindalco Ind (up 5% each), ITC (up 4%), Ambuja Cements (up 3%) and Maruti Suzuki (2%). The main laggards were Cairn India (down 8%), Sun Pharma, DLF (down 4% each), ONGC and Kotak Mahindra Bank (down 3% each).

Finance minister Pranab Mukherjee, in his Budget speech, raised the income tax exemption limit from Rs1.8 lakh to Rs2 lakh. Further, income between Rs 2-Rs5 lakh will be taxed at 10%; income between Rs 5-Rs10 lakh will be taxed at 20%; and income above Rs 10 lakh-the tax will be 30%.

He also hiked excise duty and service tax by 2% across the board to raise Rs45,940 crore. Prices of all non-oil goods are likely to go up due to the 2% rise in the effective rate of excise duty of 10% and service tax as well as on account of the widening of tax net to all services, except 17.

With inflation remaining high, the RBI on Thursday kept interest rates unchanged for now, but made a promise that cost of borrowing will come down in future. The benchmark policy interest rate (repo rate) at which RBI lends to banks has been kept unchanged at 8.5% and the cash reserve ratio (CRR), the portion of deposits banks need to keep with RBI, has been retained at 4.75%. This rate was reduced last Friday (10th March) by 0.75 percentage points to infuse Rs48,000 crore in the system to ease liquidity.

In international news, the European Financial Stability Facility (EFSF) will contribute 109.1 billion euros ($142.60 billion) to the second Greek bailout after covering the costs of the Greek debt swap, the EFSF's chief executive Klaus Regling said. The second bailout for Greece, funded by the EFSF, comes on top of the fund's assurances to Ireland and Portugal, the two other Eurozone countries that have been cut off from the markets and need euro zone loans to avoid bankruptcy.

The US consumer price index increased 0.4% in February, mainly on a rise in gasoline, according to the Labor Department. Excluding the food and energy category, core CPI edged up 0.1%. Experts fear that the rise in energy costs would hinder the economic recovery.


Life Exclusive
Beyond the Invisible Hand: Hands Off

The wrong face of capitalism

I met Dr Kaushik Basu a quarter century ago in the living room of an old bungalow in an elite area of Kolkata with a senior colleague of mine to understand the implications of the first stirrings of economic liberalisation started by Rajiv Gandhi. Dr Basu was then a young brilliant economist and regarded as one of the brightest minds in economics; his mentor was none other than Amartya Sen under whom he did his PhD at the London School of Economics. Dr Sen’s concern—economics with equity—has been the concern of Dr Basu as well.

Economists for equity have fought a hard battle for almost 30 years since the early 1980s when Ronald Reagan became the US president, Margaret Thatcher became the prime minister in UK, the Berlin Wall fell and the whole world, including China, turned right. The politics of a period influence which economic orthodoxy would dominate. After the demise of Soviet Union and capitulation of China, what prevailed was the ‘Invisible Hand’ of the market, under which individual self-interest of exchanging goods and services supposedly leads to greater social good. While this is somewhat correct, there are many situations where the invisible hand fails to move; or even if it does, it does not deal a fair hand. After the ugly market crash in 2008, brought about by the captains of capitalism, there need not be any doubt about it. But if you are still a believer in market economics, this book would be a scholarly antidote. However, as you can guess, Dr Basu’s arguments are not new—not as refreshing as Raghuram Rajan’s original idea that capitalism is rarely given a fair chance by corrupt and self-serving businessmen, politicians and officials.

In any case, what use is all this scholarship in real life ? For instance, while arguing against the theory of the Invisible Hand, Dr Basu points out how one-sided contracts can deprive large swathes of humanity of the gains of capitalism. Well, Dr Basu is now an economic advisor to the government of India, a government that is possibly the most corrupt ever. He has a ringside view of it. The 2G scam is a template of how capitalism is easily undermined by power and greed. Besides, the tens of thousand crores of giveaways under social schemes are another example of how not to help the poor. All this is happening right under Dr Basu’s nose. One wonders what influence he has. If he does not, what role is he serving in Delhi? Collecting material for another scholarly book? Is that too different from the self-interest of a much-maligned investment banker?


Both Budgets as well as RBI policy turn out to be damn squibs as expected. Bulls under threat!

The Nifty came within a whisker of the weekly stop loss of 5,295 points which has made the bulls’ condition precarious. One should utilize rallies if any to liquidate longs as further selling pressure is expected

S&P Nifty close: 5317.90

Market Trend
Short Term: Sideways       Medium Term: Sideways        Long Term: Down

The Nifty opened strong and came within a whisker of the R2 level of the week pegged at 5,506 (actual high 5,499) points but failed to take out the crucial resistance level of 5,516 points (as mentioned last week). Failure to do so resulted in profit taking as well as some speculative selling which resulted in the Nifty declining sharply to close with a marginal loss of 16 points (-0.29%). Both the budgets as well as the Reserve Bank of India (RBI) policy turned out to be damn squibs as we had envisaged in the last week's piece.

The sectoral Indices which outperformed were BSE Fast Moving Consumer Goods (+2.94%), BSE Auto (+1.35%), BSE Capital Goods (+0.56%) and BSE Metal (+0.14%) while the gross underperformers were BSE Consumer Durables (-2.20%), BSE Healthcare (-1.40%), BSE IT (-1.03%) and BSE Bankex (-0.97%).   

The weekly histogram MACD continued to move down but is above the median line indicating that the correction is still on. However, there was a significant increase in Volumes during last week's decline which is a warning that the bulls are losing their grip and further decline can be expected. A close of the "gap area" between 5,243-5,291 would be a sign of weakness.

Here are some key levels to watch out for this week


  •  As long as the S&P Nifty stays below 5,374 points (pivot) the bulls would be under pressure in the near term even though the intermediate trend is sideways.
  •  Support levels in declines are pegged at 5,248 and 5,179 points.
  •  Resistance levels on the upside are pegged at 5,443 and 5,568 points.

Some Observations
1.    The Nifty closed above the first resistance level of 5,455 points only for a day, however, it failed to take out the crucial resistance level of 5,516 points.
2.    Despite the price being above the weekly averages for six weeks, they still continue to be negatively phased.
3.    After the elections results the budgets as well as the RBI policy proved to be damn squibs as was envisaged in last week's piece.

The Nifty came within a whisker of the weekly stop loss of 5,295 points which has made the bulls' condition precarious. A close below this level would result in further bull liquidation taking the Nifty towards the 61.8% retracement level (4,986 points) of the rise from 4,588-5,629 points. Resistance levels in rallies are pegged at 5,374 and 5,463 points. One should utilize rallies if any to liquidate longs as further selling pressure is expected especially if the above mentioned stop loss is hit as well as the "gap area" between 5,243-5,291 points gets closed.

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


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