Euro concern

Jul 02, 2012, 07:15 IST | Alex K Mathews

During the previous week, we saw SEBI relaxing the norms governing offer for sale. SEBI relaxed the offer for sale and institutional placement programme mechanisms to help companies conduct sale of shares with less hassle in order to achieve the required minimum 25 per cent public shareholding requirement.

For this, SEBI has reduced the mandatory 12-week gap required earlier between sales to just two weeks. Further, it has provided an option of bidding with an ad hoc margin compared to maintaining a 100 per cent upfront margin in cash. Also, it has removed the compulsory announcement of a floor price. All these moves from the authorities were to spur growth when the numbers are indicating slowing growth.

Decision: German Chancellor Angela Merkel (C) votes with German lawmakers on the EU fiscal pact and permanent European Stability Mechanism (ESM) bailout fund at the lower Bundestag house of parliament in Berlin on June 29, 2012. PIC/AFP 

Also, after taking additional duty of the Finance Ministry, the Prime Minister arranged a meeting with the Finance Ministry officials and asked them to clear the confusion regarding the GAAR rules. The taxman will not invoke the much-feared General Anti-Avoidance Rules (GAAR) against Participatory Note holders. GAAR will not be invoked against FIIs or the non-resident investors of FII status in situations, when the FII does not choose to take a treaty benefit, but is ready to pay tax under the domestic tax law provisions.

Investors are optimistic about this new development and expect some major policy announcements very soon. Last week, the RBI raised the FII limit in government bonds by USD 5 billion to USD 20 billion and allowed the Indian companies to avail external commercial borrowings up to USD 10 billion for repayment of rupee loans and fresh capital requirement. The sub-limit of USD 10 billion would have the residual maturity of three years. It also has allowed Qualified Foreign Investors (QFIs) to invest in those mutual fund schemes that hold at least 25 per cent of their assets, either in debt or in equity or both; in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure.

Euro zone did not give any major reason for the markets to cheer during the early days of the previous week as global markets were waiting for the outcome of the EU summit. The initial talk results show some positive outcome. EU chief Van Rompuy announced a growth package which includes, a 10 bn-euro capital boost for the European Investment Bank, which is expected to raise overall lending capacity by 60 bn euros, targeting 60 bn euros of unused structural funds. This was to help small enterprises and create employment and a pilot launch of EU project bonds worth 4.5bn euros for infrastructure improvements, focusing on energy, transport and broadband. Eventhough Germany is not fully backing the new relaxations, they are under pressure from Italy and Spain, who want to bring their borrowing cost down.

Recently, many foreign brokerages upgraded the equity markets and some commented that the valuations in India are attractive. Many more upgrades can be expected after India’s Prime Minister Manmohan Singh took charge of Finance Ministry.

For the NIFTY, the immediate minor resistance at 5310. If NIFTY moves above this level with volumes, then it may test 5400 and even 5600 in the medium term. In the near term we can expect a consolidation at around 5300 level before making a sharp upswing. Investors those who missed the rally can try to enter at around 5200 levels with a stop loss below 5075. A plain vanilla call option at 5300 is also advisable for high-risk appetite traders. This position should be rolled out from 5300 to higher strike price as and when price changes.

In the stock option segment, call options of Sterlite Industries 105 strike price; L&T 1450 Strike price, Reliance Infra 560 call option and HDFC Bank 560 call options are advisable. Price corrections can be utilised to buy Infosys and ICICI call options.

The outlook for gold is still sideways, but it has tested its key support at $1547.24 on Thursday. Going forward the commodity may face resistance at $1593.74 and $1597.17.Movements above these two levels can lift the gold price towards $1643.75 in the short 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 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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