Staggered climb: Weekly Market Report

Nifty will see a struggle up to 5,190

Support from France and Germany to help Greece avoid a debt default and to stay in the European Union, and the European Central Bank's assurance to help get dollar funding for regional banks boosted global markets this week. This also helped offset negative sentiment at home and the market register gains for the week. Though the indices ended flat, the market closed net positive for a third week.

On Monday, the market suffered a sharp cut after it was announced that industrial output for July fell to 3.3%, a 21-month low. While the market opened higher on Tuesday, a negative opening on the European bourses pulled the indices down for a third day in a row. Brushing aside higher headline inflation for August, the market made smart gains on Wednesday. Late gains ensured a positive close again on Thursday, and the market discounted the 25 basis point rate hike by the Reserve Bank of India (RBI) on Friday, to close the week in the green.

Overall, the Sensex gained 67 points to close the week at 16,934 and the Nifty settled 25 points up at 5,084. If buying continues, we may see a strenuous journey to the level of 5,190. However, if the trend reverses, the Nifty could slide to 4,875.

Among the sectoral indices, BSE IT gained by 3% and BSE Oil & Gas rose by 2%, whereas BSE Capital Goods fell by 3% and BSE Consumer Durables lost 2%.

The top gainers on the Sensex were Tata Motors (up 6%), Infosys, NTPC, DLF and ONGC (up by 5% each). On the other hand, Larsen & Toubro (down 5%), Bharti Airtel, Tata Steel (down 4% each), Hindalco Industries and BHEL (down 3% each) settled at the bottom of the index.

The Nifty leaders were Grasim Industries (up 7%), Tata Motors, NTPC (up 6% each), Infosys and ONGC (up 5% each). The major losers on the benchmark were HCL Technologies, L&T (down 5% each), Bharti Airtel, Hindalco Ind (down 4% each) and Tata Steel (down 3%).

Government data announced early in the week showed industrial growth in July was down to 3.3% from 8.8% in the previous month and 9.9% in July last year. The slowdown in factory output was the worst since October 2009, when it grew at only 2.3% under the impact of the global financial crisis.

Headline inflation inched closer to the double-digit mark in August, rising to 9.78% on the back of soaring prices of food and manufactured products. Overall inflation, as measured by the Wholesale Price Index (WPI), stood at 9.22% in July, and the rate of price rise was at 8.87% in August 2010.

Despite the sharp fall in industrial output, the RBI, on Friday hiked key rates for the 12th time in the last 18 months to rein in high inflation. With this hike, the policy rate has been increased by a total 325 basis points in one and a half year to 8.25%. This increase, which will lead to higher lending rates, has already affected the housing and automobiles loans business as well as credit off-take by industry, which is seeing a slowdown in sales.


SIDBI-NSE bourse for SMEs to be operational in three months

SIDBI chairman and managing director Sushil Muhnot stated that once the SME exchange was in place, small and medium scale units would be able to raise funds from the market and SIDBI would be able to provide pure equity to the companies as a viable exit option would then exist

Kolkata: The SME exchange, mooted by SIDBI in collaboration with the National Stock Exchange (NSE), is likely to be operational in two to three months, reports PTI quoting a top official of the lending institution.

“The SME exchange will be made operational in the next two or three months and we have already got the approval from SEBI (Securities and Exchange Board of India),” SIDBI chairman and managing director Sushil Muhnot said.

He said once the SME exchange was in place, small and medium scale units would be able to raise funds from the market and SIDBI would be able to provide pure equity to the companies as a viable exit option would then exist.

To help the SMEs at present, SIDBI was providing quasi equity in the form of unsecured debt with a longer repayment period.

The SME exchange would be a separate trading platform on the NSE, he told reporters here on Thursday.

To help in market making, SIDBI would arrange a special fund for nominated investors aimed at to providing liquidity in the listed scrips.

For marketing of the exchange, SIDBI would persuade the SME units with which it had business relations for listing the companies on the bourse.

Mr Muhnot said the target was to list 10 to 15 companies each year on the exchange.

The SIDBI venture capital fund would have a corpus of Rs600 crore which would be deployed for assistance, he said.

When asked about SIDBI’s exposure to the micro-finance sector, Mr Muhnot said that last year, the lending institution had provided Rs 800 crore to the MFIs across the country.

“This year, the exposure will be around Rs1,000 crore,” Mr Muhnot said.

Last year, SIDBI’s disbursement figure was Rs42,000 crore. This fiscal, there would be a 25% growth in disbursements, he said.

Asked about SIDBI’s capital market division, he said that it might be hived off to a separate subsidiary in future.


Nifty holds 4,900 level, but fails to cross last week’s high in yet another week of volatile trade

Expect range-bound activity. It will be prudent to play stock specific moves and keep a strict stop loss below 4,900 points on longs

S&P Nifty close: 5,084.25 

Market trend
SHORT term: Down        MEDIUM term: Down        LONG term: Sideways

The Nifty opened lower and declined further, but held above the 61.8% correction (4,891) level of the recent rise from 4,720-5,169 points. A "double bottom" formation in the hourly charts around the 4,900 levels saw buying at lower levels and short covering once the Nifty crossed 5,030 points (giving a target of 5,149 points), then gained sharply to hit a high of 5,143.60 points. Volatility was high as the Nifty corrected after the RBI's credit policy review announcements and the Nifty ended with a marginal gain of 25 points (+0.49%). Volumes were lower as the Nifty traded sideways. The sectoral indices that led the advance were BSE IT (+3.06%), BSE Oil & Gas (+1.51%), BSE Reality (+1.44%), BSE Teck (+1.30%) and BSE PSU (+1.26%), while the ones which underperformed were BSE CGS (-3.11%), BSE CDS (-1.62%) and BSE FCMG (-0.68%).

The histogram MACD continues to be below the median line, implying that the medium-term trend is firmly down and what we are witnessing in a corrective rise. As we mentioned last week, the Nifty remained in a consolidation phase, during which it tested the support of 4,891 (61.8% correction of 4,720-5,169) and subsequently rallied to come very close the R1 level of the week, which was 5,171 points.

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

  • As long as the S&P Nifty holds above 5,046 points (pivot) the bears will be under pressure.
  • Support levels in declines are pegged at 4,949 and 4,813 points.
  •  If the S&P Nifty holds above the 5,057 points level in close in any correction, it could rise further to 5,181 or 5,279 points.

Some observations

The bulls have succeeded in putting a foot in the door of the bear juggernaut, but they will have to ensure that the 4,850-4,900 area holds in any corrections from here on. The support levels are as follows:
1.    The Fibonacci retracement levels of the recent rise from 4,720-5,169 points are 4,944 (50%) and 4,891 (61.8%). These should act as supports in dips.
2.    Resistance in any further rise will be provided by the "gap area" between 5,229-5,323 points.
3.    Only a close of the above mentioned "gap area" could lead the foundation of a retracement of the entire fall from 6,338-4,720 points, though no confirmation is available as yet despite the last few weeks of recovery.
4.    If the Nifty holds above 5,027 (50% retracement of 4,911-5,143 points) and 4,999 (61.8% retracement of 4,911-5,143 points it will be a signal of some strength.


The bulls have to continue to defend the 4,900 points mark. We expect further range-bound activity and in a highly optimistic scenario filling of the gap area between 5,229 points and 5,323 points, provided the above mentioned crucial supports hold.

Volatility is likely to be a bit subdued this week and may jump up once again in the week of the F&O settlement expiry. It will be prudent to play stock specific moves till then and keep a strict stop loss below 4,900 points on longs.

Keep a strict watch on the last day's high/low (5,144/5,068) for a small and swift move of around 76 points in the direction of the break. Preferably, the Nifty has to close above/below these levels for this to happen and it is useful only for very short-term traders.

(Vidur Pendharkar is a consultant technical analyst and chief strategist at


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