WEEK AHEAD

 

F&O expiry may cause volatility

 

A surge in global risk appetite may help Indian stocks extend recent rally. Volatility may remain high in the near term as traders rollover positions in the futures & options (F&O) segment ahead of the expiry of the near-month April 2011 contracts on Thursday, 28 April 2011. Shares of India's biggest private sector firm in terms of market capitalization Reliance Industries (RIL) will react to the company's Q4 results when trading resumes on Monday, 25 April 2011. The results were due after trading hours on Thursday, 21 April 2011. The Stock market remains closed on Friday, 22 April 2011 on account of Good Friday.

 

WEEK

25-04-11 to 29-04-11

 

NIFTY RANGE

5800-6050

 

CRUCIAL

SUPPORT 5870 & RESISTANCE 5960

 

APPROACH

Take a daily and stock centric approach

 

STRATEGY

Prudent to be a little cautious

 

MARKET TREND

The near term view on Nifty has turned positive

 

MARKET OUTLOOK

Market has become volatile and unpredictable

 

FACTORS

Expiry, Global Cues & Q-4 Nos.

 

IMPORTANT

Key indices will remain sideways with no clear bias

 

 

Ø        OUT-LOOK:

 

As anticipated, the Indian market did manage to recover from last week's severe jolt. A worldwide rally in equities on the back of some sterling results in the US coupled with IMD's forecast of a normal monsoon were the key drivers. TCS and Reliance Industries will come out with their results today later this evening i.e. Thursday. Both the stocks will be in action early next week along with Hindustan Zinc, Jindal Steel, Nestle India and Axis Bank. Earnings will continue to be in focus for quite some time to come as the annual earnings are spread over three months. Volatility will remain high next week due to the F&O expiry on April 28.

 

The market has turned choppy in the past few sessions and could remain so in the near term as corporates announce their results. At the same time, inflation continues to be sticky, stoking fear of another 25 bps rate hike by the RBI on May 3. The central bank is expected to jack up rates by another 50 bps or so to rein in stubborn inflation. Rates are also going up in other economies. Thailand, Brazil and Sweden increased borrowing costs this week. The ECB has lifted its rates recently and concerns are mounting about similar moves by other central banks even as the Fed is most likely to delay its exit from easy money policy.

 

World markets are closed on Friday on account of the Good Friday holiday. Trading in several world markets will remain shut on Monday owing to extended Easter holidays. Fed policymakers will meet next week while the Bank of Japan will also hold its latest policy meets. World will also tune into listen to Fed chairman Ben S. Bernanke, who will deliver a couple of speeches next week.

 

In India, the key indices will remain sideways with no clear bias as such. The Nifty may face resistance around 5900 and 6000 levels. Near-term support is likely at 5700. It might surpass 6000 if it manages to breach 5950 but the ascent won't be all that smooth. The market will encounter bumps along the way. So, it would be prudent to be a little cautious as the market has become volatile and unpredictable. Take a daily and stock centric approach to avoid taking a hit on your portfolio.

 

Ø        TECHNICALLY:

 

The week started on a bearish note as Nifty extended last Friday's fall by plunging 1.64% on Monday. On Tuesday, the benchmark slipped further and touched a low of 5693, breaching the 200 day simple moving average intraday, but recovered thereafter to close above it. The benchmark continued its upward march on remaining two sessions of the truncated trading week and finally settled at 5884.70, gaining 1.03% week-on-week.

 

The trend line adjoining 6338 and 6181, the tops made in November 2010 and January 2011, which resisted Nifty's mammoth rally earlier at 5944, continues to be an important hurdle. The same trend line again resisted the benchmark at 5923 last week and 5913 this week, as shown in the daily chart below. A decisive crossover of this hurdle can take Nifty to around 6181, which is the year 2011 high made on 4th January. On the downside, 5693, the bottom made during the week, is the important support to watch out in the near term.

 

Ø        SENTIMENTS:

 

Traders anticipate the current uptrend in the Nifty to continue in the next few trading sessions , going by options data on the National Stock Exchange (NSE). Derivatives analysts say that the substantial put writing in at-the-money and near-the-money puts suggests that the downside in the Nifty could be limited from these levels.

Normally, when a trader is bearish on the market he buys a put option, but put writing underlines bullish undertone in the market as it is a high risk trade where unlimited losses can occur compared with buying a call option where losses are limited to extent of the premium paid. "We observed that put writers were highly active at 5800 and 5900 put strikes hinting at their bullish stance.

In the past two trading sessions, over 20 lakh puts have been written at 5800 and over 40 lakh Puts at 5900 and almost all of these entered into the system, meaning that the put writers did not book profits showing their confidence in the rally.

However, as the maximum activity remains in 6000 call options, analysts say it could act as a resistance level on the upside. The heavy selling pressure in the above strikes were also evident with the sharp drop in IVs which dropped from above 20% levels to around 18% on Wednesday and further dropping to below 16% on Thursday.

A rise in open interest on sharply falling IVs indicates selling pressure. We believe that the Nifty could head towards 6000 and can further rise till 6150 levels.

 

Ø        MARKET CALL:

 

The market seems odd saying this but the market is in an intermediate downtrend even now. The Nifty needs to get past 5950, then we will be back in an uptrend. What is happening is it has got these falling tops and bottoms and during this space which has now been about 7-8 days, we have had some excellent rallies but it has not come out of that downtrend. So once we start seeing 6000 on the Nifty and above, then we could not expect a much more upside than these sporadic rallies that we are seeing.

 

Ø        STRATEGY:

 

The problem is that this market is whipsawing and it is not easy to make money on this market. So for 5960 should be your stop for any short positions. That should also be the point where if we start trading above that, you should get a bit more confident that there could be more upside here. Overall, 5780 is holding on as a support. As long as it holds on, we are range bound but the range is gradually drifting on the up-side. So, that you need to take onboard. We need to get past this 5960 type of level. Beyond 5960, we will again find resistance around 6000-6050.

 

Ø        Q-4 EARNING:

 

Stock-specific activity may dominate trade in the near term amid expectations of Q4 March 2011 results and based on actual result announcements of individual firms. Axis Bank announces Q4 results on Friday, 22 April 2011, when the stock market remains closed for a public holiday.

 

On Monday, 25 April 2011, Sesa Goa, Maruti Suzuki and Sterlite Industries are due to report Q4 results. On Tuesday, 26 April 2011, ACC, Ambuja Cements and UltraTech Cement will unveil quarterly earnings, to be followed by Wipro, Dabur India and Exide Industries on Wednesday, 27 April, 2011. On Thursday, 28 April 2011, Bank of Baroda, Crompton Greaves, JSW Energy, LIC Housing Finance and, Biocon are due to report earnings. On Friday, 29 April 2011, IDFC, Titan Industries, TVS Motor, Rallis India, United Spirits, Steel Authority of India and United Phosphorus are due to reports earnings.

 

Ø        IPO:

 

The initial public offering (IPO) of the Kishor Biyani-promoted Future Ventures India opens for bidding on Monday, 25 April 2011. The company plans to raise up to Rs 750 crore through the IPO by offering shares in the price band of Rs 10 to Rs 11 per share. The issue closes on 27 April 2011 for qualified institutional bidders and 28 April 2011 for retail and non-institutional bidders.

 

Ø        MONSOON:

 

India Meteorological Department (IMD) has predicted the southwest monsoon 2011 to be 98% (normal) of the long period average (LPA) with a model error of plus/minus 5%. IMD has indicated that there is very low probability for the season rainfall to be deficient (below 90% of LPA) or excess (above 110% of LPA). The IMD released its initial forecast for the June to September monsoon after market hours on Tuesday 19 April 2011. The forecast is made in two stages in April and in June. The forecast for the season as a whole (June-September) is issued in the first stage.

 

Normal monsoon this year could help ease food inflation and boost rural income. The quantity and geographical spread of rainfall during the monsoon season is crucial for India's agriculture sector as the country lacks irrigation facilities on more than half of its farm land. The South Asia Climate Outlook Forum last week predicted that South Asia is likely to receive normal monsoon rains in 2011. It said the La Nina weather phenomenon, which aids monsoon in the region, would continue until June.

 

Ø        INFLATION:

 

The food price index rose 8.74% and the fuel price index climbed 13.05% in the year to 9 April 2011, government data on Thursday, 21 April 2011 showed. In the previous week, annual food and fuel inflation stood at 8.28% and 12.97%, respectively. The primary articles price index was up 11.96%, compared with an annual rise of 11.40% a week earlier.

 

With inflation remaining above its comfort level, the Reserve Bank of India (RBI) is seen raising key short term policy rates by 25 basis points at its annual 2011-2012 monetary policy review on 3 May 2011.

 

Ø        CRUDE OIL:

 

A sharp surge in global crude oil prices over the past few months has raised macroeconomic worries. India imports majority of its crude oil requirements and high oil prices had raised concerns about widening current account deficit. High oil prices had also raised concerns about higher oil subsidy bill for the government and its negative impact on the government's fiscal position. US crude futures were up 48 cents or 0.43% at $111.93 a barrel.

 

Ø        EXPORT:

 

India's exports surged 37.5% to $246 billion in the year ended March 2011 (FY 2011) their fastest annual growth since independence-despite a strong rupee and weak demand in developed markets, data released on Tuesday showed. The government is reportedly targeting a 25% rise in exports in the current fiscal. Imports rose 21.5% to $350.5 billion in FY 2011. Exports in March added to $29.1 billion, highest for a single month so far.

 

Ø        ECONOMIC RELEASES:

 

·  25-Apr: US - New Home Sales ('000)

·  26-Apr: US - S&P/CaseShiller Composite 20 (%, YoY)

·  26-Apr: US - Consumer Confidence

·  27-Apr: US - Durables goods' orders ex transp. (%, SA, MoM)

·  27-Apr: US - FOMC Rate decision

·  28-Apr: US - GDP QoQ (ann, %)

 

 

IN-A-NUTSHEL

 

The Nifty April 5700 Put option did not witness closure of open interest despite the Nifty trading near these levels. This acted as a cushion for limited downsides. Also, while the index pulled back, 5800 Call option witnessed significant closure suggesting 5800 may remain a good support on a closing basis. The Nifty April 6000 Call has the highest open interest base, which indicates the Nifty may find it tough to sustain above the intermediate high of 5950.

 

 Nifty: We expect the Nifty to remain volatile during the expiry week. On the lower side, 5800 is expected to provide crucial support to the Nifty. At the same time, a close above 5950 can open up fresh upsides up to 6030/6100/6180.

 

 Bank Nifty: The Bank Nifty may trade with a positive bias if it sustains above 11960. On upsides, 12070/12200 can be tested. On the downside, immediate support is placed around 11700 levels.