21 February,2011 07:15 AM IST | | ARUN KEJRIWAL and ALEX K MATHEWS
With the union budget next week, the markets are likely to be choppy and volatile
The week gone by saw the indices gaining on every single day.u00a0On Friday the markets were substantially up before profit taking and nervousness saw the indices lose ground and close in the negative for the day. The BSE Sensex gained 482.91 points or 2.65 per cent to close at 18211.52 points.
u00a0
The NSE Nifty gained 148.95 points or 2.73 per cent to close at 5458.95 points. The loss on Friday from the intraday levels was huge and the BSE Sensex fell from a high of 18690.97 points, a fall of 479.45 points or almost equal to the entire week's net gain.
The NSE Nifty similarly lost 140.30. This week saw the recovery, which was expected and then also saw a pre-budget rally developing which then saw huge profit taking and nervousness with the 2G-scam developments on the last day of trading for the week.
Gains
The broader indices like the BSE100, BSE200 and BSE500 saw better gains than the benchmark indices and ended the week with gains of 2.81 per cent, 2.80 per cent and 2.77 per cent respectively. The BSE Midcap index rose 2.79 per cent while the BSE Smallcap gained a heftier 3.94 per cent. The BSE Bankex was a really big gainer with a weekly gain of 4.64 per cent. In every sectoral index the fall on Friday has been huge, and is a reason to worry.
Trouble
The week ahead would see the President addressing the Parliament, the presentation of the Railway budget and the economic survey of the Nation. The investigation in the 2G scam is becoming more and more complex with many more people being questioned, one of them being sent to jail. These fast paced developments would have their bearing on the stock market and one such share, which lost 20 per cent on Friday, was Anant Raj Industries. This company is believed to be involved in transferring money from one company to another and has dealt with the DB group. This was flashed on a website and a leading newsmagazine and was enough to cause a huge slump in the share price. Thursday would also see the February series of futures expiring, which is likely to add to the volatile market.
Events
There are three IPOs slated to open this week with two of them opening today. Acropetal Technologies Limited is launching its IPO in a price band of Rs 88-90 to raise Rs 170 crores. The company is a software company and is in the business verticals of engineering and design, Healthcare services, Enterprise and IT Services, Energy & Environment Services, IT Infrastructure and Management Services and IT Security Consulting Services.
u00a0
The company being in the IT space had huge fixed assets worth Rs 131.23 crores as on 31 December 2010, while its revenues for the same periodu00a0 were Rs 151.88 crores. It is quite surprising for an IT company to have such a poor asset turnover ratio of just about 1.1 times. Secondly the objects of the issue include acquisition for which Rs 55 crores have been set aside and another Rs 50 crores for repaying term loan and working capital requirement. These objects look a little out of place and make the issue expensive. I believe one should avoid the issue looking at the facts and the market scenario when there seems to be so much of uncertainty.
Caution
The second issue is Sudar Garments Limited, which is issuing 90.88 lakh shares in a price band of Rs 72-77 to raise Rs 69.97 crores. The company manufactures readymade garments and plans to double their capacity through this issue. The net profits of the company for the year ended March 2010 were Rs 4.11 crores on a turnover of Rs 52.76 crores. The net turnover for the first half of the current year has increased to Rs 49.25 crores and the net profit to Rs 4.08 crores. The Price Earnings (PE) ratio at which the shares are being issued are extremely expensive. It is 17.54 times based on half year annualised earnings.
One should simply avoid the issue.
Expectations
The markets this week are going to be extremely choppy and volatile and will be driven by political developments. The BSE Sensex has support at 18,017, then at 17,815, 17,486, 17,295 and finally at 16,981 points. It has resistance at 18,548 points, 18,690, 18,843, 19,079 and finally at 19,483 points. The NSE Nifty has support at 5,400 points, 5,333, 5,243, 5,178 and finally at 5,116 points. It has resistance at 5,558, then at 5,592, 5,715, 5,801 and finally at 5,885 points.
Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.in. Readers may contact him atu00a0 arunkejriwal@gmail.com
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.
Inflation under control
We started off this week on a positive note and had a good week altogether. However, the last day of the week was slightly slippery. After a five-day rally investors booked profits on equities. The Nifty, saw an intra-day high of 5599.25 points on Friday but in the second half market experienced a heavy sell-off. Fortunately it managed to close above 5406.u00a0
In coming days 5406 and 5327 will act as a major support level for the market.u00a0 If the Nifty trades below this level then we can expect more selling.u00a0 The major resistance for the Nifty will be at 5530 and 5571.u00a0 If it can move above these levels then it may move towards 5630 (200 Day Simple Moving Average).
u00a0The booster for the week was the inflation rate, which declined to 8.23 per cent from the 8.43 per cent previously. Also we saw the food inflation too easing to a two-month low of 11.05 per cent against 13.07 per cent while the fuel price index rose to 11.92 per cent against 11.61 per cent previously.
The apt and precise governmental decisions started having an impact on the onion prices, which later came down to as low as Rs 2/kg in the wholesale market. And the present situation shows that the government's forecast for a near 7 per centu00a0 inflation rate in this financial year is achievable.
The foreign institutional groups were seen not taking a major role in the markets as they may be waiting for the Union budget to be announced by the end of the month to make fresh investment. Also the Prime Minister's words that an efficient debt market is required to fund the needed infrastructural projects to achieve the expected economic growth pointing at its proposed $11 billion infrastructural debt fund. During the week another major development was an agreement between India and Japan to abolish tariffs on about 94 per cent of the goods traded between the two countries
Gold is positive and it has immediate target at $1390 and after correction it can even test $1414.u00a0 Support will be at $1375 and $1360.u00a0 Silver on the other hand looks very strong and it can test $32.25 and more.u00a0 The Gold silver ratio is in favour of Silver and is offering good investment opportunity at the current levels.
BPCL and HPCL both are weak and one can initiate short positions, with appropriate stop loss, preferably above Rs 620 and Rs 352 respectively. Buying opportunities can emerge in HUL, which is likely to move above Rs 292 and Hindalco can test Rsu00a0 235 in the medium term.u00a0 Risk averse investors can buy call options of March contract.
The trading strategy which can be adoptable for the Nifty is a long strangle, which can be created by buying the Nifty 5400 put options of February contract and buying simultaneously the March 5600 Call.u00a0 This position can be kept open at least till February 25, 2011.
Global markets were seen with some positivity as the economic data were actually mixed. Industrial production in Europe rose -0.1% against an estimated -0.2% while the industrial production in Japan too rose to 3.3% against 3.1%. The US import price index rose to 1.5% and the NY Empire state manufacturing index rose to 15.4%. On the negative side the Chinese inflation rose to 4.9% against 4.6% and the German GDP declined to 0.4% against 0.7%.
The German ZEW Economic sentiment was at 15.7% against an estimated 20.2%. In the US the retail sales declined to 0.3% from 0.5% and business inventories was at 0.8%.
Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange and the Bombay Stock Exchange
Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever.
u00a0
All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.
