03 January,2011 07:49 AM IST | | Alex K Mathews
On the domestic front, rising food and fuel prices remains a major concern for the authorities
The markets closed positively for the decade, year, month, week and day. It was indeed a New Year treat on Friday.
The markets opened in red last week tracking global cues but it was not the same in the later days of the week. We saw good amount of buying from the middle of the week which took the markets well above the 6100 mark. There were many mixed cues which came out in global arena which kept the markets alive.
The question on everybody's mind is about the outlook of the markets in 2011. We must consider more than one factor while discussing about the Indian market outlook. On the domestic front, rising food and fuel prices remains a major concern for the authorities who are trying hard to bring down the inflation figures around 5.5% by the end of March 2011.
The RBI intervened many times this year raising the key rates which brought the inflation down to single digit. Even though the inflation is a concern India is one of the fastest growing economy which is growing above 8.5% which can attract huge FII inflows in 2011 too, which can lift the Sensex to 23000- 26000 in 2011.Metal stocks like Sterlite, Hind.
Zinc, Tisco, Hindalco and Nalco can be bought for a medium term perspective.u00a0 BHEL and Larsen & Toubro from capital goods sector and TCS & HCL-Tech from the IT sectors are worth investing.
But the rising crude oil prices in the global front and the food output shortage in the major producing states and nations due to bad weather is causing the trouble. The food inflation which came out the other day rose to 14.44% in the week ended 18 December from 12.13% in the previous week while the fuel price inflation rose to 11.63% against 10.74%.
2010 saw many scams and manipulations in corporate world which had its effect on the stock market. As the central government seems to be on a cleaning spree, we must expect some more such acts to be revealed in the coming year which might be negative for the stock market in short term but will prove to be good in the long run. Mid-Cap banking stocks like Allahabad Bank, Syndicate Bank and Indusind Bank are good for short term investments.
On the Asian front, the Japanese housing starts rose to 6.8% from 6.4% while the industrial production and unemployment rate remained in line with the expected numbers. The US markets showed some favorable data with the US initial jobless claims declined to 388000 from 422000 and the Chicago PMI (an index that gauges manufacturing activity) rose to 68.6 from 62.5. The pending home sales decreased to 3.5% from 10.1% (MoM).
In the commodity front, early this week China had cut the rare earth exports quotas by 11% and raised the tax on shipments abroad which will have an impact on the rare earth prices across the globe as it is used in the making of smartphones, hybrid cars and guided missiles.
According to Barclays Capital the demand for copper will outpace supply by 825000 tons in 2011 which added to the positive sentiment. Commodities like gold have a short term target of $ 1418 and $ 1450.u00a0 Silver seems to be much stronger than gold, can test $32.09.u00a0 Copper can move up sharply by February 2011.
Nifty, even though has moved above the 6100 mark, the technical indicators are showing an overbought situation and so upside for the index is capped at around 6180 levelsu00a0 As the extreme short term indicators are in the over bought zone, we can expect sharp corrections which can start from Monday onwards.
Also the December rollover figure was around 59% which is below the three month average of 62.33% showing less interest by investors to roll their positions over to the January 2011 contract. Investors can buy both call and put options of Nifty for a holding period of 10 days. In the general category Jet Air, RCF, Canara Bank and Punjab & Sind Bank offers attractive investment opportunities in the medium 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 alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange and the Bombay Stock Exchange
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