Consolidation expected

Sep 05, 2011, 07:50 IST | Alex K Mathews

With less trading hours due to continuous holidays, markets were positive last week. After the Federal Reserve meeting, we saw markets around the globe rebounding from the lower levels and gold prices easing out

With less trading hours due to continuous holidays, markets were positive last week. After the Federal Reserve meeting, we saw markets around the globe rebounding from the lower levels and gold prices easing out.

In the meeting, the Federal Reserve Chairman Ben Bernanke, assured that the Central bank is still holding the necessary tools to stimulate the economy at an appropriate time. Towards the end of the previous week, factory growth was at its slowest pace in more than two years as exports shrank.


The HSBC Markit India Manufacturing Purchasing Managers' Index (PMI) fell to 52.6 in August against 53.6 in July and the export orders fell to 45 in August against 49.2 previously. Major awaited event this month is the RBI monetary policy review on September 16, 2011 in which it is expected to raise the interest rates by another 25 bps. But, if it is above this then we may see selling in rate sensitive sectors. The food inflation number which came out last week crossed the double digit mark and was at 10.1 per cent for the week to August 18 against 9.8 per cent in the previous week caused by jump in onion price.

The markets are in consolidation mode, which is having support at 4955 and 4903. The immediate resistance will be at 5125. If the international cues are positive then the Nifty may even test 5300. Beginning of the month is really crucial for our markets as we have the automobile and cement sales numbers pending. From past couple of months the auto and cement sales were showing declining trend and this time also it wasn't different. If we look at the specifics, Maruti's sales in August fell around 12.7 per cent and Tata Motors reported a 3 per cent drop in sales in the same month when Mahindra and Mahindra along with TVS Motors reported a jump of 30.38 per cent and 14 per cent respectively.


Rising interest rates and material cost have contributed to fall in sales numbers. But automobile manufacturers expected the month's sales to pick up due to festival season. Counters like Bajaj Auto, Hero Honda and Mahindra and Mahindra offers good medium and long-term investment opportunities. The cement sales numbers were good as ACC posted a rise in sales of 20 per cent at 1.88 million tonne in August 2011 compared to 1.57 million tonne a year ago while Ambuja Cements reported a 7 per cent rise in sales figures. Construction activity post monsoon is expected to increase demand for cement. Ultra Tech Cement and ACC are considered to be good for short-term pick, which is having nearly 10 per cent upside from the current levels.


Gold prices moved up along with crude. Gold price had fallen towards $1700 from the record high of $1911.46 ahead of the Federal Reserve meeting but the prices bounced back last week. Silver has support at $41.33. Investments in silver for a long-term perspective can be initiated for a target price of $50.


The US personal spending rose 0.8 per cent against -0.1 per cent, US home price index fell -4.5 per cent against -4.6 per cent previously, Chicago PMI rose to 56.5 against 58.8 while the factory orders rose 2.4 per cent against -0.4 per cent previously. Also the unit labour cost rose 3.3 per cent against 2.2 per cent while the ISM manufacturing index rose to 50.6 against an expected 48.5. The European manufacturing PMI fell to 49 from 49.7.

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. 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).

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