Market Strategy

 Market Strategy 

Daily Market Strategy - Oct 7 2011

Daily Market Strategy - Oct 7 2011

Solid start to an eventful week

Not being able to govern events, I govern myself. - Montaigne.

Three local events that start with "I" will be closely followed along with the latest global developments. IIP data for August is due on Tuesday; inflation for September will be released two days later and Infosys results will be announced on Friday. The start is set to be strong. US stocks climbed despite a weaker-than-expected jobs report. Wall Street is betting on the Federal Reserve to unleash second round of monetary stimulus to prop up the US economy. New York Fed President William Dudley, who has voiced support for more government bond purchases, will speak in Washington later today.

Financial markets in Japan are closed for a holiday today. Rest of Asia is doing well, with China leading the regional rally. European stocks drifted lower on Friday. After a solid opening, the trend could turn choppy as investors may choose to use the advance for some more profit booking. Individual stocks will remain in the spotlight. Avoid going on the offensive for the moment and wait for some more softening to pick up your favourite stocks.

The NSE Nifty last week witnessed profit booking after rallying for five consecutive weeks. Strong support is seen at around 6067. Any close below the same is likely to lead to some more selling. If that happens, the Nifty may go all the way down to 5880.

Index bellwether Reliance industries has given a breakout from falling resistance line after it closed above Rs 1050, surpassing earlier peak of Rs 1048.50. Along with the breakout, the stock has also closed above its 200 DMA of Rs 1033 for a third consecutive trading session. This may result in some follow-up buying.

One should be careful with the key indices trading close to all-time highs. Avoid chasing high returns in the Small-Caps and Mid-Caps as it is fraught with risks. There could be more selling as the market is looking slightly overbought. We might see a sideways consolidation this month after a spectacular September. But, the medium- to long-term outlook remains promising.

Shares of Gallantt Ispat Ltd. will get listed on the bourses today.

CMC, IndusInd Bank, Praj Industries and Sintex Industries will announce results today.

Indo Asian Fusegear will announce a special dividend.

Nirma will be in focus after announcing plans to delist the company’s shares.

The FIIs were net buyers of Rs5.86bn in the cash segment on Friday (provisionally), according to the NSE web site. Local funds were net sellers of Rs10bn. In the F&O segment, the foreign funds were net sellers at Rs9.44bn. The FIIs were net buyers of Rs17bn in the cash segment on Thursday, as per the SEBI web site. Mutual Funds were net sellers at Rs4.23bn on the same day.

Avoid the chase

If you want to catch something, running after it isn't always the best way.- Lois McMaster.

Chasing different things!

Realize what you really want. It stops you from chasing butterflies and puts you to work digging gold.- William Marston.

Some strength at start

Dwell not upon thy weariness, thy strength shall be according to the measure of thy desire. - Arab Proverb.

Risk appetite back in vogue!

Only those who will risk going too far can possibly find out how far one can go." T.S. Eliot.

No stress for bulls

Good tests kill flawed theories; we remain alive to guess again. Karl Popper.

Guessing is really less required to predict today’s trading outlook. Unlike the weather in Mumbai, the prospects look bright and beautiful today in the wake of one of the biggest global rallies in recent memory. Risk appetite seems to have returned overnight, perhaps temporarily as equities and commodities raced across the globe.

Bulls may dance!

Life may not be the party we hoped for, but while we're here we should dance. - Anonymous.

The market may have tumbled but it was not as bad as it appeared; the market breadth did not collapse and the decline came on lower volume. Also, outflows from the foreign funds were only marginal in the cash segment. Given that backdrop, we expect the market to resume its ascent today after a slow start. Most Asian markets, barring Hong Kong, are trading in the green. Markets in Hong Kong were shut on Thursday.

Standing at the threshold!

For many men that stumble at the threshold are well foretold that danger lurks within.- William Shakespeare.

The market may be at the threshold of yet another technical breakout, but given the murky global outlook, the bulls may just remain standing. A flat start and a possible listless session for the overall market is what we have in store.

That lazy feeling!

Laziness is nothing more than the habit of resting before you get tired. - Jules Renard.

The bulls may have managed to hold the Nifty above the crucial 5300 mark on F&O expiry day but the NSE benchmark index might struggle to hold on to that level owing to weak global cues. The good news is that Asian markets, barring the Nikkei in Japan, have not reacted to the latest bad news coming out of the US and Europe. So, despite the overnight declines in the US and European markets, the Indian market could well manage to hold its own in line with the trend across Asia.

Still, one can’t look at India in isolation. Externally the situation remains wobbly. Global recovery will be painfully slow. It will have an effect on sentiment back home. At the same time, it could lead to stronger money flows into India. If raingods remain kind enough we could see much higher GDP growth.

F&O Expiry...This is it

In a world filled with despair, we must still dare to dream. - Michael Jackson

There's not much despair on the street as the bulls managed to eke out slim gains after a fairly insipid session on Wednesday. With the global cues not supportive, it is not really easy to Just Beat It, especially with F&O expiry. While India’s macro fundamentals are sound, the smooth criminal remains the external scenario.

Conviction takes a backseat!

A strong conviction that something must be done is the parent of many bad measures - Daniel Webster.

Looks like the bulls have indeed run out of luck for now, though we reckon the overall sentiment remains positive. Given the subdued global backdrop, we expect a soft opening for Indian bourses. The NSE Nifty might start the day below 5300. Expect heightened volatility ahead of the F&O expiry on Thursday. The near-term trading band for Nifty is seen between 5200 and 5400.

Running out of luck!

Good luck seldom comes in pairs but bad things never walk alone.

What a difference a day makes! On Monday, the world markets cheered China’s proposed currency reform, firing up the risk trade. But, some of that euphoria seems to be fading already with US stocks closing in the red. In fact, the Dow Jones was up over 100 points at one point. A downgrade of BNP Paribas by Fitch and loan loss projections for Spanish banks by S&P reminded investors of Europe's debt troubles. The euro retreated from a one-month high against the dollar. The US currency is actually up against the yuan today.

Monday morning cheer!

Early morning cheerfulness can be extremely obnoxious. - William Feather.

Two big weekend developments could have a bearing on the market sentiment in the near term. The first one is the Government’s announcement that IRDA will continue to oversee ULIPs. This might set at rest long-standing anxiety over the ULIP issue and could revive the sale of the hybrid product. So, keep an eye on the flows from the domestic funds. FII inflows have improved in June after the May carnage.

RIL to hog the headlines!

Pursue your goals even in the face of difficulties, and convert adversities into opportunities. – Dhirubhai Ambani.

The Ambani brothers have taken their father’s advice and have hopefully left behind their adversities. How well they turn them into opportunities, will be visible somewhat today as RIL holds its much-anticipated AGM in Mumbai. We expect a rather subdued start to the day but Reliance group companies could hog more limelight as we wrap up another good week. Emotions may run high in the wake of the rapprochements between the two estranged Ambani siblings. Reports point to a few big-bang announcements by Mukesh Ambani. A word of caution here. Reliance and ADAG group shares have rallied in recent past. It won’t be a bad idea to adopt the ‘sell on news’ strategy and lock in some gains in these counters.