A close below 5,570 on the Nifty may change the trend
The market closed around 2% higher in the week as the government reiterated its commitment to policy reforms despite the Trinamool Congress (TMC) party’s decision to break away from the ruling UPA (United Progressive Alliance) government. The week also saw the Reserve Bank of India cutting the cash reserve ratio by 25 basis points, a move which would release Rs17,000 crore into the financial system.
The Sensex closed the week at 18,753, up 289 points (1.56%) and the Nifty gained 114 points (2.03%) to 5,691. This makes it the third weekly closing in the positive. The strong uptrend is likely to continue, however, a close below 5,570 on the Nifty may change the trend.
The market closed in the green on Monday on optimism from the government on the reforms front and the RBI’s 25 basis point CRR cut. Profit booking after nine days of gains and a weak trend in the global market led the market lower on Tuesday. Resuming trade after a day’s break, the market settled in the red on Thursday on political concerns at the Centre. The government’s decision to stand by its reforms and support from the Samajwadi Party to the UPA coalition saw the market settling over 2% higher on Friday.
Among the sectoral indices, BSE Realty (up 9%) and BSE Bankex (up 7%) were the top gainers while BSE IT (down 4%) and BSE Healthcare (down 2%) were the main losers.
Jindal Steel & Power (up 15%), BHEL (up 14%), State Bank of India (up 12%), Bharti Airtel (up 9%) and Larsen & Toubro (up 7%) were the key gainers on the Sensex. The major losers were TCS (down 8%), Dr Reddy’s Laboratories (down 6%), Hindustan Unilever, Wipro and Coal India (down 3% each).
The top performers on the Nifty were Punjab National Bank (up 18%), Reliance Infrastructure, Bank of Baroda (up 15% each), Jindal Steel & Power (up 14%) and BHEL (up 13%). TCS (down 8%), Dr Reddy’s (down 6%), Wipro, HUL and Coal India (down 3%) settled at the bottom of the index.
The RBI, in its mid-term monetary policy review on Monday cut cash reserve ratio (CRR), the amount of deposits banks keep with the central bank) by 25 basis points (bps) or 0.25% to 4.5%. The central bank, however, kept other policy rates like repo rate, reverse repo rate and bank rate unchanged at 8%, 7% and 9%, respectively. The cut in CRR is expected to release Rs17,000 crore into the financial system. With additional liquidity by CRR cut, there is a possibility that banks may reduce the interest rate to attract borrowers.
Moving ahead with steps to revive investor sentiment, finance minister P Chidambaram on Friday cut withholding tax on overseas borrowings to 5% from 20% and approved the Rajiv Gandhi Equity Savings Scheme (RGESS). While the RGESS is aimed at encouraging first time retail investors to invest in stock markets through tax concessions, the cut in withholding tax seeks to lower the cost of foreign borrowings by the Indian companies.
Global markets closed lower in the week amid increasing signs that the global economic slowdown is expanding. A Chinese manufacturing survey pointed to an 11th month of contraction. Japan’s exports fell and Eurozone services and manufacturing output dropped to a 39-month low. Meanwhile, the Bank of Japan earlier this week unexpectedly increased its asset-purchase fund to 55 trillion yen ($704 billion) from 45 trillion yen in a bid to boost growth.
A top may take place around mid-week; after which a short-term dip is likely
S&P Nifty close: 5,691.15
Short Term: Up Medium Term: Up Long Term: Down
After a gap up opening, the Nifty drifted lower but did not break the SL (stop loss) level of 5,498 mentioned last week. On the last day of the week the Nifty gained 137 points (+2.03%) to finally close the week on significantly higher volumes, indicating strength. The histogram MACD which is above the median level moved higher indicating that the bulls remain in control even though the short-term oscillators have just ventured into overbought territory.
The rise was broad-based as all the sectoral indices barring pharma ended in the green. The sectoral indices which outperformed were CNX PSU Bank (+14.66%), CNX Realty (+9.05%), CNX Infra (+6.97%), CNX Finance (+5.17%), CNX Media (+3.84%), CNX PSE (+3.21%) and CNX Service (+3.16%) while the underperformers were CNX IT (-3.33%), CNX Pharma (-2.24%), CNX FMCG (-2.04%) and CNX MNC (-0.31%).
Here are some key levels to watch out for this week
•As long as the S&P Nifty stays above 5,648 points (pivot) the bulls will be in control.
•Support levels in declines are pegged at 5,577 and 5,463 points.
•Resistance levels on the upside are pegged at 5,762 and 5,833 points.
The bulls are very much in control even though the oscillators have ventured into overbought territory. What this implies is that one should be very selective from here on and book profits close to the resistance levels mentioned above. Short-term traders should raise their SL to 5,564 points while the positional SL is still far away. Time cycles indicate the likelihood of top taking place around mid-week (or maybe settlement end as this is expiry week) from where at least a short-term dip should take place.
(Vidur Pendharkar works as a consultant technical analyst and chief strategist at www.trend4casting.com.)
Besides investing in shares of blue chip private and public sector companies, investors would also be permitted to invest through mutual funds and listed exchange traded funds under the Rajiv Gandhi Equity Savings Scheme