0 Nifty Weekly analysis

The earnings season is making the markets nervous. The sensex broke a five-week string of gains and ended weaker as worries about suppressed earnings, unimpressive inflation slow industrial growth persisted. It was also a week when the IMF pegged India’s GDP growth estimates at a disconcertingly low 4.9%. IMF also cut its projection of global economic growth to 3.3%. S&P said that the prospects of India’s ratings cut have not disappeared altogether, although finance minister P Chidambaram dismissed any such fears. Continued high inflation would make it difficult for the RBI to effect any further rate cuts immediately. According to a Reuters poll, the wholesale price index rose to 7.7 percent in September from a year earlier, compared with 7.55 percent in August and far above the central bank’s comfort level of 4-5 percent. The disinvestment secretary has reiterated the governments plans to divest holdings Oil India Ltd, Hindustan Copper Ltd and Nalco by November in a bid reach the target of generating additional revenues of Rs 300 billion the end of the current fiscal. That looks somewhat ambitious considering the fact that this week the government yet again shelved Rashtriya Ispat Nigam Ltd’s book building issue due to lack of consensus over the pricing of shares. 

Last week, the Nifty witnessed a two-way trade action in a range of 5630-5750 before settling the week below the 5700 mark. Overall observation suggests that the rally has strong legs to carry the Nifty higher in the near term unless it falls below 5,065. The upmove has the potential to extend beyond 5,650. However, one should be aware of the neckline of larger head and shoulder top pattern, which is placed at 5,485 levels. This will act as a major hurdle for Nifty. The Sensex too has pierced the crucial technical barrier. The manner in which the market has rallied has raised expectations of more gains. However, one must not loose sight of the risks confronting the market – both domestic as well as external. Things could get little trickier going forward as strong money flow is driving the current ascent. The US jobs data, outcome of Greece’s debt swap talks and the lower court’s verdict on P. Chidambaram’s alleged complicity in the 2G scam are among the events to keep on one’s radar in the immediate future. One also has to see if the ongoing FII inflows persist or taper off. Although FY12 earnings have been discounted, any nasty surprise from results may also dampen the mood. One should trade carefully at this juncture, as the market could get pegged back again on any fresh bad news.

During the week, midcap stocks continued their out performance while cement and FMCG stocks also observed renewed buying interest. Despite volatile movement, activities in Nifty options remained concentrated at ATM strikes. Call 5800 and Put 5600 strikes saw significant addition of open interest suggesting prevailing range bound bias. Continuous decline in implied volatilities also suggests writing among these strikes. Huge buying by FIIs in cash markets followed by Index futures is nurturing Nifty in an directional up move. We have also seen good amount of put writing in 5300 strike. The VWAP for Nifty is at 5220 and Bank nifty at 9855.The last expiry was at 5155 and with the way money is flowing in market, we expect Nifty to be highly volatile next week or so. 

India VIX remained sideways and hovered around its 50 DMA levels with no major surge in volatility index.

Activities among stock futures were primarily observed in the midcap segment and stocks from the media and fertiliser space saw highest accumulation of open interest. Banking and cement stocks also observed noteworthy addition of open interest during the week ahead of the earning season. Closure of positions was seen in the pharma and textile space. The FMCG and Pharma stocks had seen healthy participation outperforming the broader market. Whereas, Realty, Energy and IT stocks remains subdued. Long positions can be assumed in IT, FMCG, Banking, Cements, Consumer Durables, Capital Goods and Metals sectors if markets hold 5629 levels. Short positions can be accumulated in Pharma, Realty and Telecom if the Nifty fails to sustain above 5629 levels or below 5600 levels. 

Overall, we expect Nifty to trade in the range of 5550-5800 levels for next week.

Bank Nifty: The Bank Nifty is hovering at its straddle formed at the 11500 strike. From a trading prospective, 11200 is expected to act as strong support in the near term while 10700 would be critical resistance on the higher side

Key Nifty Weekly Levels :

Buy Nifty(Spot) above 5752 T1: 5790 T2: 5828 T3: 5866 T4: 5904 T5: 5943 T6: 5981 SL: 5629
Sell Nifty(Spot) below 5629 T1: 5599 T2: 5562 T3: 5525 T4: 5488 T5: 5451 T6: 5414 SL: 5752

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