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Making Some Weak Points

On the back of weak global cues, the markets ended lower last week. Nifty closed at 5667, down over 2 per cent on a weekly basis. The fall in the Rupee and concerns on the FIIs reducing the portfolio were the other reasons. The Federal Reserve Chairman, Ben Bernanke, hinted at tampering of the stimulus plan, causing the markets to fall. The outlook of the market is weak. Major technical indicators are still in the sell mode and the markets have not entered the oversold region too. Nifty has minor support at 5600, 5545 and 5480.

Slowed
The IIP data for April slowed on the back of reduced domestic demands and power shortages and stood at 2.2 per cent, from a year ago. The IIP data for April was revised upwards to 3.4 per cent from a provisional 2.5 per cent. In industries term, 13 out of 22 industry groups showed a positive growth during the month under review, compared to the same month in the previous year. The sluggishness in data was due to the manufacturing sector, which consisted 76 per cent of IIP data and only grew 2.8 per cent from a year ago. Consumer durables declined 8.3 per cent and consumer non-durables grew 12.3 per cent annually. Retail inflation for May fell to 9.31 per cent, compared to 9.39 per cent in April 2013. Retail inflation in rural areas came down to 8.98 per cent from 9.16 per cent in April 2013 and inflation for urban areas stood at 9.65 per cent as against 9.73 per cent in the previous month. The consumer food price based on the inflation stood at 10.65 per cent compared to 10.61 per cent on a month-on-month basis.

Trade
India’s trade deficit rose to a seven-month high in May on the back of huge precious metals imports. The trade deficit data stood at $ 20.1 billion from $ 17.8 billion in April. The deficit data was at $ 16.9 billion. Imports annually rose 7 per cent to $ 44.64 billion whereas the exports fell 1.1 per cent to $ 24.5 billion. Gold and silver imports in May grew to $ 15.88 billion. The high trade deficit has a negative impact on current account deficit and the rupee.

In the first quarter advance tax numbers, banking and FMCG stocks continue to pay higher tax numbers. HDFC and ICICI banks had paid tax up 37 per cent to R 685 crore and 20 per cent to R 600 crore, respectively. LIC paid R 679 crore, a rise of 6.4 per cent compared to the same period last year. Lupin has paid R 78.3 crore against Rs 38 crore in the same period last year and BPCL paid a tax of R 103 crore which was up around 51.4 per cent. According to tax rules, corporates are required to pay 15 per cent of the projected annual tax in advance by June 15 of every fiscal.

Economy
The Federal Reserve, in its meeting hinted an end of its $ 85 billion per month bond buying which made the US markets bleed. The Fed chairman said they planned to reduce their stimulus plan later this year if the economy strengthens. He also said that they might halt the bond-buying programme by mid-2014 if the economy and financial markets can perform on their own. Also, weak Chinese PMI data added fuel to the fire. The flash HSBC Purchasing Managers’ Index fell to 48.3 in June from a final reading of 49.2 in the previous month. The Rupee is weak, but we saw minor recovery on Friday because of the oversold situation. After this correction, the Rupee may fall further towards 60 or even 60.35 in the short term. As there are no major triggers for the markets, we can expect lack luster activity. Buying 5600 put option is advisable, low risk takers can buy 5700 put option and they can sell 5500 put option one lot each, at the same 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 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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