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Archive for February 2011

Markets Today

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It was mentioned that downward pressure will increase once the markets break the 5380 level, evidently this happened at a rapid speed owing to the last day of expiry & global worries. Now we are at the threshold of retesting the bottom formed 2 weeks ago.

There is possibility of this occurrence in next two days except that a bearish move has already begun and it would be important to watch for signs of strength and the regaining lost ground. For regaining strength, the market needs to bounce back above the 5400 levels and if not, we may see indices breaking the lows made on 11-Feb 2011 and fall further, in that case the nearest support seen from current levels is at 17200/5100.

Based on the technical charts 500EMA is currently placed at 5150 as well as based on the long term weekly formation of a support trend line  that is placed around this levels.  As a result, we could see panic if this levels are broken. After the announcement of budget indices at the very least need to  cross & sustain above 5430/18000 which can pull the bulls back into action otherwise the downward trend will continue.

 

Written by Rakesh Gandhi

February 25, 2011 at 3:10 pm

“Crude” Shock

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Since my previous post about a month ago, petroleum and petroleum product prices have spiked, with Brent crude touching $ 110/bbl. WTI crude is set to go past the psychological $ 100/bbl mark, on the back of political unrest in Libya and Algeria, which are oil producing countries, unlike Egypt.

The political unrest in Libya has taken a definite turn for the worse with reports of upto 1,000 protestors being killed by the Libyan Government. Muammar Gaddafi, the despotic ruler of Libya, has threatened to sabotage the country’s oil facilities. This move is aimed at sending a message to protestors that the country would be plunged into chaos if he is forced to cede power. Already, Libyan oil production is down to 75% of its normal production levels. This “sabotaging of oil wells” has a historical parallel in the 1991 Gulf war when the retreating army of Saddam Hussein was ordered to set fire to 700 oil wells in Kuwait. It took the US forces 9 whole months to extinguish the fires!

Hence, India will continue to bear the brunt of high crude prices, with increasing under recoveries for the state owned OMCs (IOCL, BPCL, HPCL). Per unit under recovery for the previous fortnight stood at ` 10.74/lit for diesel, ` 20.56/lit for kerosene and ` 356/cylinder for LPG. These figures can be revised upwards when the OMCs re-calculate their under recoveries for the current fortnight. The higher total subsidy burden will burn a deeper hole into the government’s finances, making fiscal consolidation harder.

Historically, Cairn India was the one stock which moved in tandem with crude prices. However, the uncertainty over its pending acquisition by Vedanta Plc has resulted in the stock barely budging despite crude’s surge. Government owned ONGC and OIL India have to provide higher subsidies at higher crude prices, which results in lesser sensitivity of their shares to rising prices. OMCs will be negatively affected as their raw material prices go up, whereas the product prices (diesel, kerosene, LPG) are fixed. The Government is unwilling to deregulate diesel as inflation continues to be in double digits.

With ONGC’s FPO about to hit the markets, there are expectations that the Govt. will announce some positive measures in the Budget, for example, reducing customs duty on crude to 0% and that on petrol & diesel to 2.5% which will reduce the level of under-recoveries in the system. Let’s hope that the Govt. smoothens this “crude” shock to the Indian economy.

From the desk of Deepak Darisi

Written by Fundamental Side

February 24, 2011 at 1:22 pm

Markets Today

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Yesterday indices opened with a gap down but recovered during the day & closed negative by end of trading session. Markets are becoming jittery ahead of the F&O expiry & the budget.  For thelast few days the index is continuously closing above 300EMA which is currently placed at 5445 levels on Nifty. There is a bullish technical pattern developing on the daily chart that can complete only if the Nifty closes above 5546 level. Based on the technical study, the break out range is becoming shorter on down side, support remains at 5380 & resistance 5530 levels. We need the markets to trade out of this range for further cues on direction, but at this juncture that seems unlikely to happen before expiry. Today indices attempted to break the range but failed & are once again trading near the lower band of the range. Looking to the current chart setup, eventually the market is likely to gain an upward trend i.e. post the budget announcement.

Written by Rakesh Gandhi

February 23, 2011 at 4:34 pm

Posted in Market Watch

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Markets Today

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As anticipated the markets were volatile as we saw a two sided move during trade yesterday. At the current juncture there are too many positive & negative forces working together that could lead to market fluctuation. Reasons being…..

1. Rise of crude oil price due to developments in LIBYA.

2. Reliance’s biggest deal with BP.

3. European & Asian markets down by more than 1.5% due to LIBYA effects.

4. News flows ahead of announcement of Budget on 28th Feb.

5. Our Futures & Options expiry on 24th Feb.

So, in this challenging time it would be difficult to pin point the market direction but based on technical levels we could take some directional cues. The charts suggest that the short term trend is good as long as markets stay above 5375 & 5540 on the upside will be trend deciding level. There is a momentous upward move expected once Nifty starts trading above 5540, till then we will witness markets drifting & finding support near the 5400 levels. Lastly, banking stocks will again positive momentum if Bank Nifty trades above 11000.

Written by Rakesh Gandhi

February 22, 2011 at 3:04 pm

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Markets Today

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The first trading session of last week, i.e. Monday, markets witnessed a strong uptrend, which came to an abrupt ending on Friday, the first sign of reversal. Even so, markets managed to close up 2.75% for the week, despite the aforementioned sharp fall on Friday.

We believe that before the Union Budget we could see rising volatility, and I suggest caution in the days leading upto the budget, as there could be false breakout on either side. Based on technical study a fall below 5375 could increase downward pressure, but looking at the long term perspective, a fall only below 5250 will trigger a fresh round of selling. On the upside 5480 will act as near term resistance & above that, the next resistance is at 5525. Based on the short term charts,  I believe during the week swing traders can trade with stop loss of 5375.

Banking stocks are showing good resilience to the current downtrend after making an intermediate low a few days ago. Further if the  Bank Nifty holds above 11000 levels, which was seen for a very short period in last week, we could see strong upward momentum in many banking stocks.

Written by Rakesh Gandhi

February 21, 2011 at 3:37 pm

Rising rates, Banks are in a position to pass on costs

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Loan growth for banks grew by 20% at the end of January 2011. Credit growth was broad based as growth from rural regions remained healthy while urban offtake too was robust.

The move towards the base rate regime saw a lot of reluctance from corporate clients who moved away from banking sources (for short term loans). However this was the case during H1FY11 when liquidity was abundant. Banks even gave in by subscribing to corporate debt which pushed up the size of their investment books. Now with liquidity remaining a continuing concern banks have begun passing on costs to corporate clients and are even reluctant to allow corporates the benefits of arbitrage between banking and market rates.

One look at the incremental CD ratio which has inched up from 0.82x in Sep 2010 to 0.99x in Jan 2011 and the situation in the industry is apparent. Since October 2010 bankers have shown serious intent on garnering deposits. With half of Q4FY11 already behind us banks at best are likely to end FY11 with a 14-15% deposit growth. Although deposit rates have moved up by 150-200 bps banks have also begun hiking loan rates by 100-150 bps.

So with this equation how were the NIMs maintained? Apart from the growth in low cost deposits, banks have also been operating at higher CD ratios. Thus contrary to the dip expected in H2FY11, banks are most likely to sustain NIMs during FY11.

However, the story for FY12 could be different as interest rates continue to rise. The focus would then move from sustaining NIMs towards having a broad based growth across sectors.

From the desk of Chaitra Bhat

 

Written by Fundamental Side

February 18, 2011 at 10:09 am

Market update

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The markets paused yesterday after a 3 day rally from 5185 to 5505 on Nifty (and 17295 to 18361 on Sensex) almost 6% up from the lows formed last week. As this pull back is witnessed after markets corrected 16% from their recent top it needs more time to consolidate above the recent lows for confirmation of a bottom. On a very short term basis benchmark indices need to stay above 5440/18200 for the existing rally to continue. There could be a case of bottom formation if the last week’s low holds, even if there is adverse news affecting market sentiments.

I would believe if this happens then, we could see consolidation happening below 5700 & above 5250 for few weeks before it once again catches upward trajectory. Today any move past 5525 levels on Nifty can create strong upward momentum & that could be possible if Bank Nifty crosses 11000 levels.

Written by Rakesh Gandhi

February 17, 2011 at 12:47 pm

Posted in Market Update

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