Pressure builds

Stocks are already in the negative zone with losses of key support

Weakness was seen dominating the markets for the last week tracking both global and domestic conditions. Markets falling below crucial levels added pressure.

Technically, markets are already in the negative zone because it has lost key support at 8339 (200 DMA). As long as the market is below its crucial level chances of testing further lows can be anticipated. Nifty has support at 7997, if it trades below then it could test 7900 and more. Resistance for the Nifty will be at 8200 and 8275.

Weak performance
On the back of weak performance in the electricity and steel sectors, the eight infrastructures’ output contracted in April of the current fiscal. The data contracted 0.4 per cent in April which is the second straight month of contraction after a 0.1 per cent decline in March 2015. The data saw a growth of 5.7 per cent in April 2014.

The output of crude oil declined by 2.7 per cent where as natural gas and electricity fell by 3.6 per cent and 1.1 per cent. The steel output growth slowed down to 0.6 per cent in the month but coal production grew by 7.9 per cent. In the last week, the country’s manufacturing data jumped to a four-month high because of growth in production and due to the increase in new orders. The HSBC PMI rose to 52.6 in May from 51.3 in April.

The data stood above the 50 mark which distinguishes between growth and contraction. The major trigger for the Indian markets in the last week was the Reserve Bank of India (RBI) policy meet, where the central bank reduced the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 7.5 per cent from 7.25 per cent.

The reverse repo rate got adjusted at 6.25 per cent whereas other policy tools like SLR, CRR were kept unchanged. The central bank revised its inflation projection to 6 per cent by January 2016 as compared to 5.8 per cent earlier and cited weak monsoon, rebound in oil prices and global volatility as risks to inflation. The RBI also reduced its growth estimate in the current fiscal year to 7.6 per cent from 7.8 per cent estimated in April.

Falling down
The Foreign Direct investment (FDI) in India fell by 40 per cent on a yearly basis in March 2015 to $ 2.11 billion, which was the lowest in the four months. The previous low level was in November 2014 when the FDI stood at $ 1.53 billion. The data was at $ 3.53 billion in March 2014.

According to the data released by Department of Industrial Policy and Promotion (DIPP), the foreign inflows to the country grew by 27 per cent yearly basis to $ 30.93 billion as against $ 24.29 billion in 2013-14. Maximum FDI was received in the services sector ($ 3.25 billion), followed by telecommunication ($ 2.89 billion) and automobiles ($ 2.57 billion).

A blow to the country, the MET department last week downgraded its monsoon forecast from below normal to deficient. Earlier, the department said that the country will get 93 per cent rainfall which was reduced to 88 per cent. This shows that a probability of a deficient monsoon has gone up from 33 per cent in April to 66 per cent now.

Around the world
On the global front, the markets were focused on the Greek concerns. The country and its creditors met to reach a deal as Greece may fail for the debt payment to IMF. The weak economic data was also a cause for the fall. Another major trigger was the ECB meeting where the central bank kept its interest rate on hold.

In the US markets, the major trigger to watch out for in the coming week is the retail sales, initial and continuing jobless claims, core PPI and Michigan consumer sentiment data. Industrial Production and Investors sentiment data will be the major data for the Euro Zone markets.

For the Indian markets, in the week ahead the major triggers includes current account data, industrial production, inflation rate and manufacturing production data. Option traders can buy Nifty 8100 put options and can write 8000 put options one lot each. Buying 8200 call option and 8100 put option together can also created on anticipation of higher volatility.

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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