Dial P for Profits

Jul 21, 2014, 08:08 IST | Alex K Mathews

Good signs can be seen at Dalal Street as hopes are placed on the new government policies

Profit booking were seen ruling the markets in the beginning of last week. But the buying seen in the selected heavy weight stocks well supported the markets. Nifty closed at 7663 up around 3 per cent on weekly basis.

Moving ahead
The momentum of market is positive and the immediate resistance for the Nifty lies at 7790 and has strong support at 7601 and 7413 levels. Hoping more bets from the new government, the retail investors pumped in Rs 7309 crore into equity markets for June through mutual funds; highest inflow for a month in six and half years.

According to the data from Association of Mutual Funds of India, the equity mutual fund schemes reported a net inflow of Rs 9761 crore in May and June combined.

Earlier in January 2008, when Sensex hit a high of 21206, a record of Rs 12717 crore was seen flowed into the equity mutual funds. On the back of curbing of farm exports by the new government, the country’s wholesale inflation for June eased to a four month low.

The WPI inflation stood at 5.43 per cent as compared to 6.01 per cent in the previous month. The primary article which is having a weightage of 2.12 per cent in WPI stood at 6.84 per cent in the month under from 8.58 per cent in May and fuel and power stood at 9.04 per cent from 10.53 per cent in the previous month.

The food inflation which has a weightage of 14.34 per cent in the index remained at 8.14 per cent against 10.27 per cent in the same period last year and the same was at 9.50 per cent in the previous month.

Trading high
The rise in the gold imports had widened India’s trade deficit to an 11 month high. The data for the month of June jumped to $ 11.76 billion from $ 11.23 billion in the previous month. The exports for the said month rose 10.22 per cent from a year earlier to $ 26.48 billion whereas the imports too rose 8.33 per cent to $ 38.24 billion.

Gold imports rose by 65 per cent to $ 31.20 billion in June after the central bank allowed more private agencies in addition to designated banks to procure gold. Oil imports during June 2014 were valued at $ 13342.8 million which was 10.90 per cent higher than a year earlier.

For the last week, the RBI came out with a notification which made the banks and infrastructure to cheer. According to the norms, the bank can raise long term funds to lend to affordable housing and infrastructure and the seven year bond with no secondary market option can be issued with a fixed or variable rate.

The bonds will no longer attract CRR or SLR and the banks need not to set aside additional funds for meeting priority sector requirements. The central bank also notified that these bonds cannot be sold to other banks.

Counters like Tata Steel, ICICI Bank, L&T, WIPRO, TCS and Cipla are good for taking long positions in the F&O segment. Out of the money call options are also advisable for these stocks.

Outlook for the gold is still positive despite of the last week’s sharp sell-off, it is still above its 100 day simple moving average at $ 1303 and it is likely to test $ 1315 and $ 1321. Gold’s major support lies at $ 1285 per troy ounce.

Foreign front
On the US front, the investors focus was towards the corporate season and the better earnings from the companies made the Dow Jones to hit fresh intraday highs. Also the Federal Reserve’s meeting was in focus, where the FED chair raised concerns about the “substantially stretched valuations” in some sectors.

The FED chair in the semi annual testimony said to continue the central bank’s monetary stimulus as the labour markets and inflation was still below its goal. In the Asian front, the major trigger was the Chinese data, which was above the street expectations. In this week, the major trigger for the Indian markets will be the corporate earnings.

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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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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