Markets Weekly For 27/07 To 31/07/2009

WEEKLY MARKET OUTLOOK

NIFTY (4568.55) : Huge Supports@ 14400 or 4420,Below 4420 Next Support@ 4380 & 4300. Big Resistance@ 4655 & 4770,If Sustained For Week, Next Tgt 5200/500/800

Resistance : 4590 / 4620 / 4655 / 4710 / 4770 / 4795

Support : 4510 / 4530 / 4485 / 4440 / 4385 / 4350 / 4275

It is said that the stock markets are cyclical in nature. When the first rally began in 2003-04 Sugar,auto and It stocks were the leaders. While large cap I.T stock like Infosys technology is 20% away from all time highs, Auto companies have already started making all time highs. Hero Honda and Maruti the leading motorbike and Carmaker have lead the up move. Though the up move in both of these companies might be nearing resistance zone, the upmove in indigenous auto ancillary stocks might just have started. To name a few keep a watch on companies that depend 100% for orders on Hero Honda and Maruti. Yes the safety net that comes with diversification is missing, at the same time the trouble that auto ancillary makers around the world are facing is non-existent with these companies. Around a month back we had covered a company from the Hero Honda group that supplies Cold forge components gears and shafts to Hero Honda. The fortunes of this company is clearly linked with that of its parent group, Hero cycles. While Hero Honda is not cheap trading at a PE of 23X FY09. This company traded at an abysmal Pe of 5X FY09. At the same time the business was available at 2X FY09EBITDA. OPM is at a healthy 25%. People who look for future growth will be interested in the 170crs Greenfield unit that is operational from April. I am not naming the company, as I strongly believe that food tastes best when it’s self-made. Further Info Company is trading at 0.5X Fy09sales and is owned 75% by the promoter group. Also watch for other auto ancillary stocks. This sector might have just started its Bull Run.

ICICI Bank reported quarterly earnings on Saturday. On the face of it the result looked good. Consolidated net profits up 67.8% with marginal declines in total income. Operating profits up 47.5%. Expenditure reduced by 15%. When one scrutinizes the number further the reason for reporting profits are known. The company made 1097 crs in Treasury operations. On retail banking company has posted a loss of 473 crs vis a vis a profit of 129 crs. On wholesale banking front the company has posted a net profit of 676 crs vis a vis profits last year of 1190 crs. Company had a huge unsecured loan book in retail loan is a well-known fact. But the 43% drop in wholesale banking profits is surprising for people who track ICICI bank. Technically the stock needs to cross 805 to be Bullish. The Treasury income will be negative once the interest rate starts rising and at that point of time the going for ICICI might be bearish. Stock has already moved 3X from March lows and it only makes sense to book profits when the going is good. I have no short trades on ICICI as markets nowadays see more short squeeze on technical movements then selling on Fundamental news.

Adani power Ipo might at best be avoided. I am personally awaiting NHPC IPO scheduled to be launched next week. Even if NHPC opens around IPO price the company will definitely give superior returns on a Long-term basis? Adani Power current capacity is 330 MW and company is planning 6600 MW capacities. While the Ipo market suggest a positive 10-15 rs opening for the company. I personally wont subscribe to the issue. Yes the Adanis have execution capabilities which they have demonstrated in the past but as the saying goes,” How will one dine when there is nothing left on the Table.”

Coming to Nifty watch for 4795 as the upper trendline of the current upmove. On weakness watch if 4395 gets broken. Markets will react to ICICI and RIL numbers on Monday. If 4600 is not crossed convincingly, its time to be cautious.

SECTOR WATCH : AUTO (Bullish)
Last weeks trade showing long positions build up in AUTO COUNTERS. Total OI of ASHOKLEY FUT up 14.59% prices up 5.43%, M&M FUT up 17.52% prices up 6.74% MARUTI FUT up 17.97% prices up 16.53% and TATAMOTORS FUT up 17.42% prices up 18.39% last week. We expect up move to continue in next week.

STOCK FUT TO WATCH NEXT WEEK : TATAPOWER FUT (Bullish)
Total OI of TATAPOWER FUT up 140.59% prices up 1.89% last week. ATAPOWER JULY FUT Intraday high 1185.90, Intraday low 1111.10 last week. We expect up move in coming week.

WEEKLY NIFTY FUTURE OBSERVATION

Observation:-

1) Total OI of NIFTY FUT up 17.03%, NIFTY (JULY) FUT closed up 4.43% last week.

2) Out of NIFTY 50 Stock FUTS, 43 Stock FUTS closed positive, 3 Stock FUTs closed negative and 4 Stock FUTs close flat last week.

3) OI of current series NIFTY 4300 CE is down 38.57% prices up 86.35%, NIFTY 4400 CE is down 8.82% prices up 101.20% and NIFTY 4500 CE is down 13.73% prices up 105.71% last week showing profit booking. OI of NIFTY 4600 CE is up 1.70% prices up 84.38% and NIFTY 4700 CE is up 3.12% prices up 56.25% showing buying. NIFTY 4700 CE is 38.12 LK highest OI in CALLs.

4) OI of current series NIFTY 4300 PE is up 15.58% prices down 87.34% showing put writing. OI of NIFTY 4400 PE is up 153.49% prices down 82.66% and NIFTY 4500 PE is up 220.15% prices down 74% showing aggressive put writing. OI of NIFTY 4000 PE is 67.62 LK highest OI in PUTs.

5) Total OI of JULY series CALLs is down by 31.65 LK to 2.65 CR, JULY series PUTs is up by 28.12 LK to 4.33 CR. NIFTY JULY series PCR (OI) at 1.63, monthly highest levels.

Conclusion :-

NIFTY SPOT Support 4500-4510, 4450-60 levels, below 4440 levels, Strong Supports 4380-90 levels. I don't think NIFTY SPOT will trade below 4370 levels in worst condition. Bounce expected from near 4380 levels. On up side, NIFTY SPOT will try to touch 4580-90, 4610-20 levels.

This Week Will Remain Highly Volatile Due To MONETARY POLICY on 28^th & F&O Expiry on 30^th.