Last week was very dismal week for the market. Markets have completely shocked and taken huge beating on account of disappointing IIP numbers, rising inflation, crude and no revision in Infosys' guidance in dollar terms. Huge sell off seen in technology, capital goods, power, oil, banking and metal stocks. Global cues have not played any big role in ending part of the week. Bse Sensex, CNX Nifty and CNX Mid cap Index after wild swing on both side remained side ways for the week with a gain of only15 points, 33 points and 87 points respectively for the week.
Inflation has been inching up and showing no signs of cooling off. Inflation for the week ended June 28 stood at 11.89% as against 11.63% for earlier week. IIP numbers are a cause for concern. Our research view suggests that the Finance Ministry may revise growth forecast for FY09 down to around 8% or so. India’s political problems are hurting fiscal discipline. FII feel
that India must address fiscal problems to avoid a downgrade. There is fear that India’s rating might be low if credit problems persist. In the light of above worries, FIIs sold shares worth Rs
1,012.20 crore in the month of July 2008 so far, till 9 July 2008. Our research house expects that the overall earnings of the corporate sector are seen rising about 15% in Q1 June 2008 over
Q1 June 2007. That would be well below the 20-25% growth seen over the past few years.
On the Nifty, we are looking at 3,800-3850 as a bottom and possibly top around 4,150-4,200 is a broad range for the Nifty and similarly for the Sensex, which should also be in the range of
1,000-1200 points or so. We advice investors that we cannot have a major pullback from here and they should not be so aggressive on rallies in a bear market because such rallies can fizzle out at any time and bad news tend to come on all resistance levels.
Price Pattern View: -
This week we found classic ‘Long Legged Doji’ pattern on the weekly candle stick chart. The
pattern has long upper and lower shadows in the middle of week’s trading range, clearly reflecting the indecision of the buyers and sellers through out the week. The market moved higher and then sharply lower. It then closed at or very near the opening price. If the opening and the closing are in the center of the week’s range the line is referred to as weekly Long- Legged Doji. We even didn’t get the follow through of previous week’s Hammer pattern. So now if we combine last two week’s pattern then conclude that the top of 14066 and bottom of 12822 will be more crucial to be crossed in the immediate future for more trended move on either side.
Momentum Indicator: -
Relative strength Index (RSI) on the daily chart is not showing any sign of strength and it is
moving in tandem with the price. MACD on the daily chart found support from previous low area
and cut it’s averages from lower level indicates that medium term bottom is near by those level of 12500 but more confirmation is require from other indicator also. The Sensex is well below its
short term and medium term moving averages. 20 DMA is 14094 and 50 DMA is 15505, indicates weakness in the price still prevails. ADX line is moving south ward signaling no trend in the market and more consolidation is going on.
Tactics: -
Long term investor and medium term investor should start building their port folio because the
market is in intermediate uptrend. The risk-reward ratio is very much in favor of investor now with the Sensex having fallen almost 40% from its January high. Big earnings to be announce in the next week that one should look out for.
Resistance: 13750, 14150. Support: 13300, 12800.
Future & Option Strategies for the Week:-
As we mentioned in the last week that for Nifty future 4300 and 3800 are the trend change levels. We still continue the strategy of “Short Strangle Strategy” to earn profit.
Once again sell Nifty July 4200 Call at Rs 66 and sell Nifty July 3700 Put at Rs 53. Trade will be
profitable till remain in the range of 3620 -4280.
Maximum gain in this strategy is Rs 5950/- and risk in this strategy is unlimited if Nifty future closed above or below the range of 3647 -4266.
Max. Return: Rs. 5950/-.
Max. Risk: Unlimited (If Nifty close out side the range of 3647 -4266).( As On July 11-08)
1: Infosys Tech Results
The results were much in the lines with market expectation. With the rupee having
depreciated since the beginning of the month, it was expected that this IT behemoth would
show a considerable improvement in its top lines and bottom lines.
YoY, on a standalone basis, total income rose 22.09% to Rs.4,647 cr. Net profit was up
22.76% at Rs.1,262 cr. On a consolidated basis, QoQ, net sales grew 6.86% at Rs 4,854
cr. Net profit was at Rs.1,302 cr, up 4.24%. The margins were impacted due to increases
in salary and visa costs which to some extent was offset by rupee depreciation.
Aided by the depreciating rupee, the outlook for FY09 has been increased. The company now
expects its top line to grow by 28% as against an earlier projection of around 20%. However,
it is pertinent to note that Infosys has not revised its earnings as well as revenue guidance in
dollar terms.
Conclusion: The rupee is expected to remain in this state of “depreciation” for some time
now and this will be a big advantage for Infosys and other frontline IT companies. But no
revision in dollar term earning suggests that management has no confidence in real business
development. This clearly means that upward revision in rupee earnings is purely based on
depreciating rupee.
2: Inflation
As expected, inflation for the week ended 28th June 2008 was in the double digits, except
that it was at its highest. At 11.89% it is much higher than the 11.63% recorded last week.
Food articles was up 0.6%, textiles was up 0.6%, machinery and machine tools rose
0.1%, non-food articles rose 0.4%, manufacturing was up 0.4 %; fuel, power and energy
remained unchanged at 0.1%, fertilizers were up 4.5%, while basic metals was down
0.8%. Vegetable prices were up 3.7%.
Conclusion: Inflation and the market indices will continue to get ruled by the movement of
the crude prices. There seems to be no let up there. Saudi has increased supply in July by 2%
and that probably has helped cool down the prices. But this is just a temporary relief.
There are expectations of further monetary tightening in quarterly monetary policy review of RBI scheduled on 29 July 2008 as inflation is showing no signs of abatement. It is
expected another 25 bps hike in CRR.
3: Index of Industrial Production (IIP)
Growth in IIP for May 2008 fell to 3.8% as against a robust 10.6% in the same month of
2007. Industrial growth for April has been revised downwards to 6.2% from 7% recorded
earlier. And this downward revision is the most shocking part of it all.
Manufacturing production growth during May was down at 3.9% as against 11.3% in
the year ago month. Electricity production growth slipped to 2% compared to 9% in
May, 2007. Mining growth in May grew at 5.2% as against 3.8% in the same month of
2007. Consumer-goods production increased 7.2%.
Conclusion: The figures for April were revised downwards. That is a cause for concern. So
does this mean that if the May figures are also revised, the actual numbers would be lower,
more sharply?
Overall Development
Inflation is growing at the fastest pace while industrial production is growing at the
slowest pace. There are undoubtedly some tough times ahead for India Inc. Rising
interest rates, soaring inflation, cut down in buying by the Indian consumers, will all have
a further telling effect on the bottom lines of the Indian companies. Auto companies are
seriously contemplating cutting down production. Rising costs might start impacting
expansions and other Greenfield projects, leading to further slowdown. The Government
is taking all measures to reduce prices, as that is a priority right now but this is surely
causing the economic growth to slowdown.
Caution may prevail on the bourses in the near term, as along with the economic factors,
the country is now going through political uncertainty too. All would now depend on
the first quarter results and more importantly on whether, the government will be
able to win the confidence vote in parliament.
Posts
No comments:
Post a Comment