In the week gone by, markets remained weak due to weak cues from global markets and domestic political worries. Nifty closed down around 4 per cent. The entire sectors closed in red with Realty and Power sectors as the major losers; they closed down around 13.3 per cent and 7.5 per cent respectively.
Global ratings agency Moody’s said that high food inflation is a credit negative for India as it weakens the government’s initiatives and RBI’s monetary policies. The higher food prices can cause rise in the border inflation, which may, in turn, push up the wages. It also said that the country’s current pace of food inflation is faster than the global average. Another rating agency, Care, said that FY14 GDP will improve to 6 per cent from 5 per cent, which is expected in FY13. It also said the expansion will lead to an uptick in the bank credit growth to 18-19 per cent from the current estimated 16 per cent.
The much-awaited RBI policy came out this week, where the central bank cut the 25 basis points to 7.5 per cent. The reverse repo rate was automatically adjusted to 6.5 per cent. The central bank also kept the CRR unchanged at 4 per cent. RBI retained the growth and inflation forecast of the country at 5.5 per cent and 6.8 per cent respectively for the current fiscal.
The government also continued with its disinvestment; this time it was SAIL’s turn. The government, which currently holds 85.82 per cent stake in the company, opted for the Offer for Sale (OFS) route on Friday to sell 5.82 per cent in the company. Floor price for the auction was set at R63 per share which was at a discount of 1.41 per cent over the previous day’s closing of R63.90. Through the auction, the government is trying to raise around R1,500 crore. If the government succeeds, the exchequer will get R23,800 crore from disinvestment, which will be the highest-ever realisation from disinvestment in a single year. But the amount will still be lesser than the revised estimates of R24,000 crore.
Despite political worries, the government went forward with its initiatives. The Cabinet cleared the National Food Security Bill under which 67 per cent of the population is legally entitled to get subsidised grains under the Targeted Public Distribution Systems (TPDS). The subsidised prices of grains may be revised after three years to the level of the minimum support price paid for procurement of grains. The government is expecting an additional burden of about Rs 23,000 crore at 2012-13 prices.
Meanwhile, markets all around the globe were trading lower due to the worsening Cyprus debt crisis. The European Central Bank has assured to provide liquidity to banks in Cyprus until March 25 (today) but also warned that the emergency funding will be withdrawn if the Cypriot government fails to formulate a new bailout proposal. Cyprus needs 5.8 billion euros to qualify for a 10 billion euro bailout from the European Union and International Monetary Fund. On the Asian front, the Chinese HSBC PMI for March rose to 51.7 from 50.4 in February, but remained below the two-year high of 52.3.
Going forward one can buy Nifty 5600 put option in the March series and 5800 call option in April series. Investors with high-risk appetite can buy 5800 March call options. International Gold is getting support at USD 1600 and USD 1605 levels and it is likely to test USD 1625 and USD 1628 levels in the near term.
The major data to watch out for this week in the global markets includes US New Home Sales and Pending Home Sales data, and the Consumer Confidence data. For Indian markets next week, all eyes may be towards the March month F&O expiry. Nifty has support at 5616 (200 DMA) and 5600. As the market is in the heavily oversold region, minor positive news can lift the market towards 5800 to 5863 levels before the March expiry.
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 firstname.lastname@example.org. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).