High pressure situation

Updated: Dec 15, 2014, 09:44 IST | Alex K Mathews |

The Nifty and Sensex are seeing a slide downwards, which is a cause of concern for investors

Selling pressure was seen in the markets at the beginning of last week. The weak global cues and the Nifty moving below its psychological support added to the downside as the Nifty closed down around 3.7 per cent whereas Sensex ended down around 4 per cent on a weekly basis. The mid-cap and small cap ended down around 3.8 per cent and 3.4 per cent respectively.

Going down
Nifty has minor support at 8216 and if it moves down below this level then we can expect further weakness and may test 8200 or even lower levels. Resistance for the Nifty lies at 8257 and 8302, movements above these two levels can give further strength to the market.

According to data released by SIAM (Society of Indian Automobile Manufacturers), the domestic passenger car sales increased 9.52 per cent to 156445 units in November from 142849 units a year ago. The motorcycle sales in the period under consideration declined to 3.05 per cent or 853254 units from 880078 units in November 2013.

In November 2014, the total two wheeler sales rose 4.89 per cent to 1.3 million units and sales of commercial vehicles rose 9.05 per cent to 47686 units. It also said that, vehicle sales across various categories showed a growth of 5.03 per cent to 1.6 million units from 1.52 million units in November 2013.

The current account deficit was seen widening as of the surge in the gold imports and of the fall in the export growth. The CAD for the quarter that ended in September stood at $ 10.1 billion (2.1 per cent of GDP) as compared to $ 5.2 billion (1.2 per cent of GDP) for the same quarter last year.

Deficit data
According to RBI data, for the first quarter of the current fiscal, the deficit was at $ 7.8 billion (1.7 per cent of GDP) and current level remained within the central bank's comfort zone ( 2.5 per cent of GDP). Export growth fell to 4.9 per cent in the quarter under review from 11.9 per cent in the same period last year and merchandise imports were up 8.1 per cent in the September quarter against a fall of 4.8 per cent in the same quarter of 2013-14.

According to OPEC, global demand for OPEC crude oil will be less than expected and far below its current output. In its monthly report, OPEC forecasted that the demand for the group’s oil will drop to 28.92 million barrels per day (bps) in 2015 which is down 280000 bpd from its previous expectation.

The cut in the forecast came out due to the weaker outlook for Europe and Asia, and of the predicted higher supply growth from shale and other non-OPEC sources. According to the report, with OPEC pumping 30.05 million bpd in November, there will be a surplus of 1.3 million bpd in 2015 and 1.83 million bpd in the first half.

The cabinet last week approved the insurance amendment bill suggested by a parliamentary select panel. The bill proposes to hike the existing 26 per cent cap to 49 per cent and is expected to rise around R 62500 crore of fresh foreign funds to the life and non-life sectors.

The report recommends a composite cap of 49 per cent should be inclusive of all forms of FDI and foreign portfolio investments. The Bill has been pending since 2008 and in the coming week, the Rajya Sabha is likely to table the Bill for consideration and passage.

Backward slide
The strong payroll data was a major trigger for the US markets but the oil’s slippage made the markets to move to negative territory. Also, weak data from China and Japan and political uncertainty in Greece made markets sink.

Coming to the end of last week, strong US retail sales and weekly initial jobless claims made markets reverse its movements. In the Euro Zone area, inflation rate, balance of trade, core inflation and current account data are major triggers this week.

A bunch of data is waiting to be released on the US front where some of the major ones are Industrial production, housing starts, current account and inflation. Crude is weak and testing new lows, this may fall further if the situation continues. The major reason for the fall in price is higher production and lower demand.

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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