Ends on a high

Sep 17, 2012, 07:39 IST | Alex K Mathews

The markets ended at a high almost in about three months after a swing of trades between positive and negative throughout the week. The Sensex climbed 19 per cent this year helped by the highest foreign fund inflows among 10 Asian markets outside China according to a study.

The IIP data for the month July stood at 0.1 per cent, as against a contraction of 1.8 per cent in June. The fall in electricity growth along with contraction in the mining and manufacturing output resulted in weakness in industrial production.

On Thursday last, the Cabinet Committee on Political Affairs (CCPA) raised the price of heavily subsidized diesel to rein in the fiscal deficit, which is the first increase since June 25, 2011. The diesel price hike may reduce the under-recoveries of the state run oil marketing firms in the wake of high international crude oil prices. But the rise in fuel may boost inflation in the short term, but the price cut is considered as the start of more reforms by the government. The RBI may also cut the rates in the policy meet to support the government to slash fiscal deficit.

In the week, the PSU stocks rose on the news of Union Cabinet's disinvestment plan. The finance ministry sought permission for selling stakes in four companies in the mineral sector and an oil explorer and producer. The norms make it mandatory for all listed companies to have a minimum 10 per cent public share holding by August 2013. The companies were Hindustan copper, NALCO, Neyveli Lignite, Oil India and MMTC. The government is also planning to take the e-auction route for the selling the stake, which may fetch a higher price than the existing tender method.

India's exports dropped for the fourth month running, August, as a result of the weak demand from the US and Europe. India's annual exports fell 9.7 per cent to $22.3 billion in August, while the imports were also down 5.1 per cent to $38 billion leaving the trade deficit of $15.7 billion as per the provisional data from trade ministry.

The Indian Govt is likely to push for the deferments of stringent banking capital requirements under Basel III norms. The govt. can save upto Rs 90,000 crore over the next five years if the norms are deferred. According to RBI's estimates, the government will have to allocate this amount for state run banks over the next five years to meet Basel III standards if it wants to retain its 58 per cent share holding.

The stocks markets across the globe are trading higher on the news of FED unlimited bond buying. The FED said it will increase its holdings of long term securities with open ended purchases of $40 billion of mortgage debt a month. The central bank may continue to buy mortgage-backed securities until the outlook of the job market improves. The FOMC also said it will hold the federal funds rate near zero until at least the middle of 2015. European stocks were trading in the highest level of 14 months and the Asian markets headed for the longest winning streak since January 2011.

Natural rubber prices are likely to move up sharply because of the US stimulus hopes and higher crude oil price. Natural rubber October futures may move up towards Rs 203.50 per kilogram in the short term.

As the extreme short-term indicators are in the overbought zone higher level profit booking can be expected, especially above 5625 levels. Aggressive investors can buy 5600-call option for short-term purposes. Nifty has support at 5500 and 5468 levels. In the futures segment, counters like Hero Motors, Jindal steel; M&M, Sterlite Industries and Reliance Capital are likely to move up sharply. Investors can also buy options in these stocks. Gold is likely to test $1799 and $1840 in the medium term. For Indian markets, the main trigger now to watch is the RBI policy meet, which is to be scheduled on September 17, 2012.

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).

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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