Sectors were riding the crest of a wave, last week
The domestic markets in the last week, reached new highs thanks to continuous buying in almost all sectors. But a higher level was also seen in the markets. Nifty on Friday closed at 8086 up around 1.6 per cent on a weekly basis. In the coming days, we can expect to see the Nifty trading in a range of 8170-8250 levels on the higher side and 8000 as its key support levels.
The GDP data rose to its fastest pace in more than two years in the April - June quarter beating the street estimates. According to the central statistics office, the country’s GDP rose to 5.7 per cent for the first quarter of 2014-15 up from 4.6 per cent rise shown in the previous quarter.
According to the data, the manufacturing sector data recorded a growth of 3.5 per cent in the period under review, as compared to a contraction of 1.2 per cent in the same period last year and the mining sector also showed a growth of 2.1 per cent against a decline of 3.9 per cent in a year ago period.
The construction sector expanded 4.8 per cent in the first quarter of the current fiscal against 1.1 per cent growth in the corresponding period last year. On the back of rise in the food items prices, the retail inflation for the industrial workers rose to 7.23 per cent in July, as compared to 6.49 per cent in the previous month.
The data was below the previous years figure of 10.85 per cent for the same period. The food inflation stood at 8.11 per cent in July, against 5.88 per cent in June and against 14.10 per cent in the same month last year.
Banking and business
For helping domestic businesses, the RBI has relaxed norms for external borrowings in the last week. The central bank allowed recognised non resident External Commercial Borrowings (ECB) lenders to extend loans in Indian rupees.
The RBI said that the lenders should mobilise rupees through swaps with a bank in India, and also, the ECB contract should follow all the conditions applicable to the automatic and approval routes as in case, the overall cost of ECB should be in proposition with current market conditions. The HSBC/Markit purchasing managers index for services sector which came out in the week, stood at 50.6 in August as compared to 52.2 in July indicating a slowdown in the sector activity.
A reading above 50 shows a sector expansion while a reading below indicates contraction of output. For August, the Indian services firms registered a fourth consecutive monthly rise in new orders but the pace of expansion slowed from the previous month.
On the global front, the US economic data were supporting, but the sell off seen in the energy stocks due to the fall in crude oil prices kept the markets away from more highs. The US factory activity rose to its highest level in nearly three and a half years in August and construction spending rebounded in July.
The other main triggers for the last week were the central bank from Europe and Japan. The ECB in its meeting, unexpectedly cut the ultra low interest rates and the Bank of Japan said it would keep in place its aggressive monetary easing measures designed to fight deflation.
Crude oil is still weak below $ 99.75 and is likely to test $ 92 in the near term and may even fall below this crucial support level. Higher production, lower demand and strong dollar are the key reasons for the price decline. In the last week, we saw IT stocks picking up their lost momentum and the trend is improving, so it is prudent to create fresh long positions in the front line IT stocks.
Investors can buy one lot of 8050 call option and can sell two lots of 8200 calls at the same expiry. Aggressive traders can buy 8000 put options and 8100 call options together. In this week, for the Indian markets major data to watch out are Inflation data, Industrial production and manufacturing data.
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).