Inflation to stay high

The markets had a mixed session last week. While major debt ridden Euro zone nations were trying hard to tackle their problems, the US debt default risk was a global concern. As inflation remained a major concern within the country, investors kept a vigil on rate sensitive sectors.

Interest
Corporate results, which have already come out, are not so encouraging and if we look at the results as a whole, irrespective of the sectors, profit growth has been quite disappointing.
u00a0

A customer purchases vegetables at a roadside market

This indicates that high interest rate regime is affecting a company's profit. Due to higher interest rates, many companies have either postponed some of their projects or have been forced to take loans at higher interest rates to finish their projects projects.

Nifty is having resistance at 5650. It can move towards 5717 (200 DMA), 5741 and 5778 while it has support at 5579 (100 DMA) and 5509 (50 DMA).

One needs top watch out for the next meeting of the Reserve Bank of India (RBI) on Tuesday. If the rate hike is above the expected 25 basis points (bps), then we may see downside in the market. Investors should book profits at or around 5700-5725 levels.

Inflation
The food inflation was at 7.58 per cent in the week ended July 9 as against 8.31 per cent in the previous week while the fuel price index remained unchanged at 11.89 per cent. A slight decrease in the rate of inflation will not affect food prices drastically.

As the southern part of the country is entering a festival season next month, we will see an increase in the price of vegetables and other essential goods. Recently, statements from the government too indicated that inflation will remain high this year and it will take several months to bring it down.

Metal
The yellow metal may remain sideways below $1600 mark, before marking its next upward move towards $1628 and $1650 in the short term. It has strong support at $1580 and $1568. Silver is also following gold and is likely to move up towards $41.50 and $45.50 in the short term. Support for the commodity will be at $ 37.50. The US and the European markets were under pressure last week.

The International Monetary Fund (IMF) said that Greece was still a concern. Also five of 15 states with top bond ratings from Moody's Investors Service may be downgraded because of their dependence on federal revenues, making them all the more susceptible to a US credit cut.

Aid
Eurozone leaders announced a new aid ofu00a0 $229 billion for Greece, thus speeding up their efforts to end the 21-month sovereign bond crisis. They also empowered their 440 billion euro rescue fund to buy debt across the ailing European nations including Spain and Italy. Corporate results in the US were good.

This gave support to the markets. Major economic indicators were not so encouraging in the US with the Treasury International Capital (TIC) Net long-term transactions declining to $23.6 billion against $30.6 billion. The existing homes sales too dropped.
u00a0
The initial jobless claims rose to 418000 form 408000. Counters like Ingersoll-Rand, Patel Engineering, Jain Irrigation, Mastek, Yes Bank and IDFC can be bought at declines.u00a0 Investors can also consider creating small trading positions in ACC, HDFC and Tisco in the Futures and Options (F&O) segment.

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.
u00a0
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 isu00a0 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.