The NIFTY volatility index came down to as low as 18per cent as investors were searching for clues to enter or exit the markets. The NIFTY trading range for the last three days was just around 60 points showing less participation from the investor community. The F&O expiry happened on a decent note alongwith rollover of around 70 per cent with good sectoral rollovers seen in auto, banking, metal, telecom and realty. On the domestic front, the main news, which pulled down the market was the report that S&P had downgraded India’s outlook to negative and warned of a downgrade in two years, if the fiscal situation continues to worsen.
The lowering of outlook from stable (BBB+) to negative (BBB-) is expected to make overseas borrowing a matter of concern. Investors with high risk can also buy Call options on these stocks, i.e. Tata Motors, TCS and ICICI Bank for a holding period of 2 working days. Nifty has already moved below its 200-day simple moving average at 5207. The major support for the Nifty will be at 5108. Resistance for the Nifty will be at 5258 and 5315.
S&P not only downgraded the outlook of the country but also of some financial institutions, which include—Axis Bank, HDFC Bank, IDBI Bank, Indian Overseas Bank, Indian Bank, IDFC, SBI, Syndicate Bank, Union Bank of India etcetera, citing reasons like—the banks are subject to government policy and regulation; they invest a significant portion of their funds in government securities; a high proportion of their revenue comes from domestic operations and most of them are mainly owned by the government. This downgrade was ignored by the government, its financial bodies and many financial analysts.
Standard & Poor, the credit rating agency downgraded credit rating of Spain by two-notches, sending tremors in the equities and commodities markets. Euro fell down against dollar and gold price moved into the negative territory. A strong dollar will negatively impact the gold price. The Spanish 10 year yields broke above 6 per cent. Gold has support at $1647 and $1620. Resistance for the yellow metal will be at $1660 and $1674.70. Gold price may remain in a narrow range, but may try to test the $1674 mark in the short term.
Later in the previous week, the cabinet approved the banking laws amendment bill 2011, which increases the voting rights of private sector banks from 10 per cent to 26 per cent. This was a long awaited decision, but the banks aren’t that happy because, RBI’s directive says that promoters should not hold more than 10 per cent stake in the company. So, this decision may not bring any major benefit to the existing private sector banks. The US had some good numbers this time. The US home sales rose to 32,8000 against 32,0000 and the Richmond manufacturing index rose to 14 against 7. US durable goods orders fell to -4.2 per cent against an estimated -1.7 per cent while the initial jobless claims fell to 38,8000 against the estimated 37,5000 and pending home sales rose 4.1 per cent against 0.4 per cent. Japan too saw some economic data coming out mostly on the negative side. Japanese IIP fell to 1 per cent against an expected 2.4 per cent and Tokyo core CPI fell to -0.5 per cent against -0.3 per cent while the retail sales rose 10.3 per cent against 3.4 per cent previously.
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 email@example.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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