And that's flat

Aug 13, 2012, 07:06 IST | Alex K Mathews

Positive start fizzles out

Last week opened with a positive trend on the back of strong global markets. But towards the end, the direction of markets changed to hit and close on a flat note. The continuous FII fund flow though, kept the markets supporting at a very low level. On the positive side, counters like HUL, ITC and Reliance Industries are likely to move up further. On the negative side, investors can take short positions in the BEML counter.

The Govt. made key changes to the proposed land acquisition Bill, making it more attractive for industry by easing some stringent conditions. It relaxed the requirements of consent from landowners, tightening the definition of market value. The ministry has also rejected the Standing Committee's recommendation that the government should not be involved in acquiring land for private companies or public-private partnership projects. The Govt. also relaxed the consent requirement for PPP projects and private companies, i.e. private project developers will require obtaining consent of 80 per cent of landholders.

The IIP numbers too came out, which stood at -1.8 percent and showed a contraction led by a fall in the manufacturing sector. The manufacturing sector, which weighted 75.5 per cent in the IIP fell 3.2 per cent in June 2012, compared to that level in June 2011. In terms of industries, 14 out of 22 industry groups in the manufacturing sector showed non-negative growth during June 2012 compared to June 2011.

The finance ministry is now working to find out a model for the stake sale in the PSUs to meet the Rs 30,000 crore-disinvestment targets for the current fiscal. The government is also pursuing the Offer of Sale (OFS) and Institutional Placement Programme (IPP) model to meet the target.

The weak monsoon was another issue. The Govt. is also planning to introduce the MNREGA and other schemes to meet the challenges of drought like situations and enhance imports of commodities in short supply to control price rise. The weak monsoon since 2009 is set to prevent the PM from reducing the biggest budget deficit, increasing the risk of a downgrade of India’s debt rating.

The new Finance Minister revealed a plan to boost investment and economy by a possible cut in interest rates and measures to attract domestic savings and foreign capital.

On the international front, the markets opened positively on the better than expected US jobs data. The other major data the investors were waiting for was the Chinese industrial output growth, which slowed in July, which added pressure to step new efforts to support expansion. The retail sales and inflation also missed estimates. The bank of Japan also left its interest rates and policy stance unchanged after a monetary policy review.

Buying 5300 call options and selling 5400 call options are advisable, buying 5300 call options is also a good strategy. A long Strangle position on Nifty can be considered. It can be created by buying 5400 call options and 5300 put options.

Another induction the markets are waiting for is the WPI data, which is due on August 14, 2012. The major results to come out are Tata Steel, Coal India, Hindalco, Reliance Infrastructure and IDFC.

The outlook for gold remains positive, on expectation that the US may sooner than later announce Q3, which can act as a booster dose for the commodity markets. Gold has target at $1628 and $1650. Support for the gold will be at $1594 and $1575. Crude is also firm and has minor resistance at $94.25, above that it can even test $96. Support for crude lies at $93.25 and $91.75.

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 Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk. 

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