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All eyes on the rupee

Last week, markets were seen opening on a negative note and remained weak in the early part of the week on the back of a weak rupee and global conditions. The rupee each day falling to its record low, made foreign investors remain in sell off mode. It made the Nifty close down around 1 per cent on a weekly basis. The sectoral losers for last week were Healthcare and the Auto sector, which closed down around 3.7 per cent and 3.5 per cent respectively. The gainer was the Metal sector, which closed up around 13 per cent. Nifty has resistance at 5535 and 5585. Movements above these levels can lend further support. On the other hand, if Nifty moves down below 5315 then we can expect a further downtrend in the market and it may test 5200 or even lower levels at 4950.

Steps
The RBI recently came out with more steps to save long-term bond yields from further fall, and helping banks from incurring financial losses due to declining bond prices. The central bank also allowed the banks to hold Statutory Liquidity Ratio (SLR) bonds in Held to Maturity (HTM) category at 24.5 per cent of their respective total deposits or Net Demand and Time Liabilities (NDTL) which was earlier mandated to be brought down to 23 per cent. Also, the banks are allowed to transfer SLR bonds to HTM category from Available For Sale (AFS) or Held For Trading (HFT) categories up to the limit of 24.5 per cent as one time measure. In addition, the banks can spread over the net depreciation on account of Market To Market (MTM) valuation of securities, held under AFS/HFT categories over the remaining period of the current financial year in equal installments.

Tax
The government is planning to clear Direct Taxes Code (DTC) Bill 2013 in the monsoon session of Parliament, which may bring more changes in the current tax procedures in India. The bill will bring a higher 35 per cent tax for the super rich category, as a fourth tax slab. The DTC bill was introduced in Parliament in 2010, in order to bring more people and companies under the tax net. The minimum alternate tax for the companies may be levied on book profit, and the securities transaction tax is likely to be maintained.

Global
On the global front, markets were down. The better than expected US PMI data which rose to 53.9 in August, as from 53.7 in July, made markets change their direction. On the Asian front, the Chinese HSBC flash PMI data, which rose to a four month high of 50.1 in August as compared to 47.7 in July, which beat the expectations of a moderate rise to 48.2 also supported the markets. In the Eurozone, the PMI rose to the highest level in two years to 51.7 in August, as from 50.5 in the previous month.

Correction
The rupee was oversold against the dollar, and it is corrected after testing the historical low at 65.56. There are chances that it may find support at 63.11. Immediate resistance is at 64.56 and movements above this can cause further sell-off in rupee.

Counters like Tata Power, Hindalco, Sun Pharma, Reliance Infra and IDFC are very positive on the F&O segment and investors can buy the call options of these stocks.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). 

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