Last week, the markets went haywire. The markets fell by 100 points and the same day it recovered. With no trend emerging, there is a lot of frustration among investors who are forced to shift from one investment avenue to another. Europe still remains uncertain even after the EU lead by Germany and France have reached a mutual understanding regarding the EU rescue fund. Inflation rate, which has moved into the double-digit region, is another concern. Despite repeated government and RBI intervention, inflation has continued to remain high and its movement into the double-digit zone is alarming. But rise in inflation to a certain extent could be attributed to the base effect. Now that the railway freights have been hiked and there is a proposal to hike the passenger tariffs very soon, inflation is not likely to come down in the near future unless the core problem is addressed.
Last week we saw food inflation for the week ended October 8 coming in at 10.6 per cent against 9.32 per cent in the previous week. The primary articles index was up 11.18 per cent compared with an annual rise of 10.60 per cent a week earlier. Fuel inflation rose slightly to 15.17 per cent during the latest reported week from 15.1 per cent. If we look at the food inflation data pertaining to the last three years, we see a sharp jump towards the end of the year. The high inflation that we are seeing is the result of high food price and base effect. 2010 food inflation data shows that towards the end of the year the index rose from 180 levels in October to 196 levels in December.
If the base effect works and the 2011 Wholesale Price Index (WPI) moves up from 200 to 212 towards the end of the year, we may see inflation moderating somewhere near to 8 per cent -7 per cent. For non-food articles inflation eased to 8.51 per cent from 9.59 per cent a week earlier with fibres, oilseeds and minerals showing a decline. Onions became 11.27 per cent cheaper and wheat prices were down 0.18 per cent during the week under review and all these indicate that food prices are coming down but the base effect is the issue. TCS net profit grew by 6 per cent to Rs 2,301 crore over a year ago as banks, manufacturers and other clients increased spending on IT to improve efficiency and drive business in new markets, but pricing came in lower.
The results were below the street expectation. However, the falling rupee, which has moved below 50.2 for the first time since May 2009, helped the stock to get lower level support. Companies like Exide, Crompton Greaves, HCL Tech, Bio Con and Sterling Technology and JSW Steel disappointed the street. With Diwali just round the corner, don't expect a sharp decline during the early part of the week, but there are chances that Nifty may test 5200 after the October expiry. Aggressive traders can sell Nifty 5300 call options and 4900 put options of November series for short-term perspective, to gain from time value.
Crude oil is positive and it is likely to trade higher but the upside is capped at around $89.98 mark in the short term. The immediate support will be at $83.30 and movements below this can cause further sell-off.
Companies like ING Vysya Bank, HDFC, Hero Motor Corp, Indusind Bank, HDFC Bank, Raymond, Hexaware and Thermax met analysts' forecast and these stocks can test further highs in the near term.
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).
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