4 Weekly Nifty Analysis

RBI reduced the cash reserve ratio (CRR) by 25 basis points from 4.5% to 4.25%. This would inject Rs 175 billion in liquidity. the RBI policy acted as a dampener to some extent as the central bank not only held on to policy rates but also hiked provisioning norms and cut GDP growth forecast for 2012-13 to 5.8% from 6.5%. Inflation estimates were also raised to 7.5%, The earnings season is well underway, and will vie for investors’ attention in the coming week as well. While the Government has unleashed a spate of reform measures in the recent past, much ground still needs to be covered, especially on the fiscal front. Once done, that will then pressure the RBI also into taking appropriate monetary action. The RBI governor has maintained that inflation has to be at a lower level for him to effect any rate cuts. The disappointment of no rate cuts was visible in the way the markets headed southwards immediately after the RBI policy review came out. But the positive numbers from HSBC’s purchasing managers Index (PMI) helped the markets get over the disappointment.

There was some non-weather related good news from the US. The country’s private-sector hiring increased by 158,000 in October surpassing expectations. The weekly initial jobless claims fell by 9,000 to 363,000 last week. For the coming week, global markets are likely to be cautious ahead of US Presidential elections and also an avalanche of  domestic economic data to be released in US, i.e. unemployment rate, initial jobless claims, ISM manufacturing data, and change in non-farm pay rolls. Back home, the indices have retraced from week's low, but the sustainability of the advance remains in doubt.

Last week, Nifty slipped lower penetrating the key support of 5630 and bounced higher subsequently above this key level and has posted a week’s high of 5711 on Friday’s session. The consumer durables, auto and pharma had seen healthy participation outperforming the broader markets. Whereas, capital goods and FMCG displayed a weak tone. Markets for the week rebounded back above 5630 for the week after jerk reaction on credit policy and closed almost near the weekly high. The near challenge for Nifty will be to cross 5730 which has been acting as major hurdle and two consecutive close is needed in order for corroborate the bullish implication. Coming week the US election outcome will be key decider for trend in global markets and hence need to adopt a cautious optimistic approach. Nifty has come back in the range of 5630-5730 it was trading before .The VWAP for Nifty is at 5690 and that for Bank nifty is at 11500. Huge put writing at 5600 and some call writing at 5800 seems to suggest a range of around 5600-5800 in short term. Despite volatile movements, the Nifty options base at 5600 Put and 5800 Call strikes is of more than 5 million shares each. A sharp decline in the options premium last week indicates range bound bias will continue in the near term. Sectors wise huge longs were seen in Banking, Capital goods, Auto and IT stocks. 

The India volatility index observed a spike above its 21 DMA levels of 15.56 post settlement but failed to sustain above these levels and once again started moving downwards. Continuous options writing at ATM strikes also kept the volatility index low. We expect the VIX to trade in 13-17 levels in short term. 

Nifty: The 5580 levels are expected to remain crucial for the Nifty in the near term. Long bias should remain till the Nifty holds these levels. On the higher side, immediate hurdle is placed at 5730 above which 5800/5880 can be expected  (refer key levels below for exact break outs)

Bank Nifty: The Bank Nifty has immediate support at 11300 below which momentum may fade away from the banking index. On the higher side, 11700 is expected to remain a hurdle

Long positions can be assumed in auto, banking, capital goods, consumer durables, utilities and pharma sectors if markets hold 5750 levels. Short positions can be accumulated in energy, metals and FMCG if the Nifty fails to sustain above 5750 levels or below 5700 levels.

Key Levels for Nifty :

Buy Nifty(Spot) above 5749 T1: 5787 T2: 5825 T3: 5863 T4: 5902 T5: 5940 T6: 5979 SL: 5658
Sell Nifty(Spot) below 5658 T1: 5620 T2: 5583 T3: 5545 T4: 5508 T5: 5471 T6: 5434 SL: 5749

   

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