Market Radar: Strong and steady

Feb 20, 2012, 09:57 IST | Alex K Mathews

A number of cues have resulted in dispelling clouds of gloom

A number of cues have resulted in dispelling clouds of gloom

Sustained FII inflows kept the market firm. Further, falling inflation, expectation of a better Union budget, the changing outlook of power manufacturers, distributors and power equipment makers after the Prime Minister's intervention into sorting out their problems all paved the way for bringing in the retail segment that lost a chance of entering the markets in January. Looking at the F&O side, the Nifty PC ratio is above 1.6 indicating strong support for the markets and the option IVs are also keeping low.  Nifty spot has immediate resistance at 5606, 5650 and 5696. Movements above these levels can further give a boost to Nifty. Support will be at 5502 and 5379. Aggressive investors can create a call ratio spread on Nifty March options. The position can be created by buying 5600 Nifty call option at Rs 240 and selling two call options 5800 for Rs 143.00. Unlimited loss can occur only if Nifty moves above 6046.

Poster power: Athens, GREECE: Protesters hold signs which together
read 'We thank you' as they take part in a protest against recent
austerity measures approved by the Greek government, on February
18, 2012. Greek protesters displayed 'thank you' messages in response
to demonstrations organised in European and other countries to mark an
international day of solidarity with the Greek people

During last week, we had inflation for the month of January 2012 at 6.55 per cent, which is the lowest in over two years against 7.47 per cent in December 2011, on the back of a fall in food inflation. Another major decision taken at PM level was to approve the suggestions made by the Secretary level committee for addressing the issues of the power sector. According to the suggestions, Coal India Limited will sign FSAs with power plants that have entered into long-term power purchase agreements with power distribution companies and have been commissioned/would get commissioned, on or before March 31, 2015. The FSAs will be signed for a full quantity of coal mentioned in the Letters of Assurance for a period of 20 years. with trigger level of 80 per cent for levy of disincentive and 90 per cent, for levy of incentive.

It was also heard that the government is checking for viability of a proposal to allow Pakistan companies to invest in India. For this, the Finance Ministry may have to consider amending FEMA rules to allow investments from Pakistan. Also the next major trigger for the markets is the Union budget, which will be presented in March. In the global arena, Greece was the talking point. The European Union had again and again asked them to add more austerity measures to get the second bailout fund. During the week, China pledged to invest in Europe's bailout funds and sustain its holdings of Euro assets. Apart from that the European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the ECB to fill the gap in the bailout program arranged to Greece. The bailed out country Portugal's jobless rate jumped to a record 14 per cent at the end of last year and is expected to rise in days to come as well due to austerity measure agreed to be implemented while accepting the bailout. Portugal's biggest union CGTP has called for a general strike on March 22 to protest against the centre-right government's labour market reforms.

The Rupee has been showing good strength last week on increased capital inflow and views regarding the Greek bailout and is trading around 49 against the dollar. The Rupee is holding on at current levels, due to oil importers demand for the dollar as crude prices have moved from levels of $98 to $102 in near term. In the case of gold, prices have moved up on optimism that Greece may secure its second bailout very soon. Data also showed that demand from China has risen to 190.6 tonnes during the October-December 2011 period compared to a fall of 42 per cent to 173 tonnes in the same period, in the case of India. Investors can initiate long positions on Wockhardt, Adani Enterprise, Onmobile and ABB.  Investors who would like to buy options can buy M&M, Bajaj Auto and TCS call options.

Firm Crude price can lift gold prices also, it can test $1737 and $1751.40, movements above these two levels can lift sentiments to a greater extent.  Gold has support at $1712 and $1680. As the implied volatility of March options are at a high, it is prudent not to buy options especially the out-of-the-money options in cases like, Nifty and stock options.  Instead one can create combination strategies like Bull Spread and Bear Spreads, which can be created by buying an at the money call/put option and selling an out-of-the money call/put option.

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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