Slump after the highs

Sep 15, 2014, 08:04 IST | Alex K Mathews

The fall after the pinnacle was the story of the last week as profit booking was seen

After hitting a lifetime high, profit booking were witnessed in the markets which kept them from going up. The buying from FIIs supported the markets. On a weekly basis, Nifty ended up around 0.25 per cent. During the consolidation phase, Nifty may remain in a range of 7800 to 8250.

What to expect
On the disinvestment front, the government is likely to offload 5 per cent stake in SAIL which may fetch the exchequer over R 1700 crore at current market price. Also, in order to increase the participation by the retail investors, the government is planning more incentives.

The Department of Disinvestment is planning a “case to case basis” offering retail investors up to 20 per cent in the Offer For Sale (OFS) and also to offer higher discounts to the floor price. Currently, the retail investor quota in OFS is 10 per cent whereas 35 per cent is reserved in the Floor on Public Offer (FPO).

According to news, the government may now announce the issue date two days prior to the OFS and the floor price declaration. The government is using OFS route for disinvestment of PSUs and currently the cabinet on economic affairs have cleared stake sale in Coal India, ONGC and NHPC.

The mutual fund exposure to the banking sector rose to its all time high in August, which was also the seventh consecutive month rise. According to SEBI data, the mutual fund investments in banking stocks reached Rs 56625 crore on August 31, which is 20.10 per cent of their total equity Assets Under Management (AUMs) of Rs 2.81 lakh crore. Software was the second preferred in the row with an exposure of Rs 29668 crore followed by pharma (Rs 19394 crore) and auto (Rs 17754 crore).

Excise duty concessions
The government is planning to extend excise duty concessions to the automobile sector beyond December. According to sources, the Heavy Industry Ministry is likely to send a proposal to the finance ministry in this regard.

Earlier, excise duty on small cars, motorcycles and commercial vehicles were reduced to 8 per cent from 12 per cent and the duty on large cars to 24 per cent from 27 per cent.

In the US, markets traded lower as energy stocks fell on the back of lower crude oil prices. Also, concerns that Federal Reserve may raise interest rates sooner than expected and more sanctions against Russia added to concerns. In the Chinese economy, consumer inflation unexpectedly fell to a four month low which added speculations of deflation.

A bunch of data is waiting to be released in the US markets in the coming week which includes industrial and manufacturing production data. Also FED’s interest rate decision, inflation, current account, core inflation and housing starts are the other ones to focus.

Golden chance
The outlook for gold is negative below $ 1250 and may test $ 1225 in the near term and it can even test $ 1218 per troy ounce. Resistance is at $ 1248. Crude oil outlook is also negative and it is likely to remain weak and may test $ 89 per barrel.

Investors should create call ratio spread by buying Nifty one lot of 8100 call and selling 2 lots of 8250 calls. A long strangle position is also advisable on Nifty, which can be created by buying 8150 call and 8050 put together. For the Indian markets in this week, the major data will be the WPI inflation data.

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).

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