Play it safe

While stock prices rise and fall, don't get lured by the prospect of making some quick money but wait and watch before you invest

Markets were on a downturn and lost ground on four of the five days last week. If the market would not have risen inexplicably on Wednesday, the fall would have been over 1,000 points on the BSE Sensex.

The fall at the end of the week on the BSE Sensex was 831.37 points or 4.41% to close at 18,860.44 points. The NSE Nifty lost a similar 4.42% or 250.05 points to close at 5,654.55 points and in the process breaking downwards the low made on 26 November 2010.
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This low has acted as support to the market on a number of occasions and the break indicates more weakness in the coming week. Other indices like the BSE100, BSE200, BSE500 and BSE smallcap all lost between 4.03% and 4.23% while the BSE midcap lost less at 3.42%. This indicates that the fall was widespread.

DECIDING FACTOR

Foreign Institutional Investors(FII) have been sellers in the market and have sold approximately Rs 3200 crores in the week gone by, while Domestic Institutional Investors (DII) were buyers for just about Rs 1200 crores.

The difference is in the effect that FII activity has on the markets. When they are buyers, the market moves up and when they are sellers our markets fall.u00a0u00a0

CAUTION PLEASE

In IPO (Initial Public Offering) news, Midvalley entertainment Limited was oversubscribed just about 4 times. The new listing during the week was Shekhawati Poly-Yarn Limited which saw trading of 22.44 crore shares against its issue size of 1.2 crore shares.

The share touched its high of Rs 69 half hour before trading was to close and then in 30 minutes the price simply crashed and the last trade was at Rs 32. The weighted close of the day was Rs 47.50. The next two days saw the stock open at down circuit of 20% and close there itself with Friday's close being Rs 30.45.

Investors are badly trapped in this stock and would have a difficult time exiting this stock even with losses as this share is likely to move down circuit to circuit. I have been continuously requesting investors to stay away from such issues and overcome the temptation of trying to make a quick buck in a 'managed' issue.

Tata Steel would be opening its FPO on Wednesday and closing the same on Friday and the price band of the same would be available today by way of public announcement. The issue size is 5.7 crore shares and would raise about Rs 3,400 crores.

The share closed for trading on Friday at Rs 621.70. The issue price band would certainly be available at a discount to the above price, but looking at the cautionary note given by the company's management about cost pressures and a flat quarter in terms of quantity of production and sales, the results are likely to be lower compared to previous quarters.

Secondly, SAIL which has announced its results had a bad quarter and the share price reacted quite adversely. It makes sense to stay away from the FPO as there is no attraction of even the retail discount, which the government IPOs offers.

HOT AND COLD

Coming to the markets, with the break of important support on Friday, some more pain and fall is likely before the markets stage some recovery. I believe we could see some weakness early in the week before a recovery starts and that could make the week end positive. The BSE Sensex has support at 18,669 points, then at 18,339 points, then at 18,206 points and finally at 17,819 points.

It has resistance at 19,268 points, then at 19,447 points, then at 19,720 points and finally at 19,904 points. The NSE Nifty has support at 5,584 points, then at 5,510 points, then at 5,413 and finally at 5,345 points. The resistance for the week is at 5,778 points, then at 5,827 points, then at 5,972 points and finally at 6,095 points.

It would be interesting to give some statistics here that the BSE Sensex has in the first fortnight of January fallen 1,649 points or 8.04% and a staggering 2,248 points or 10.65% from Diwali peak of 21,108 points.
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The NSE Nifty has fallen 480 points or 7.82% in the New Year and 684 points or 10.79% from the Diwali peak.u00a0u00a0u00a0
Traders are advised to be cautious on shorting the market if it falls further this week and investors could do select value buying on dips in the next few days.
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Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.in

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.

Markets trade weak

It was interesting that Nifty seems to a have fallen in love with extreme volatile trades. In the recent past, we have seen Nifty intraday range taking a shift to 100 to 150 points. The markets opened for trade last week on a lower note and slipped around 160 points from the high and the other day it had an intraday range of 148 points.

On Wednesday it went up around 163 points gaining all the points lost and again on Thursday slammed around 121 points from the days high and continued the trend on Friday.

This created fear in the minds of investors and they refrained from taking positions at both ends on lack of trend. As the Nifty has lost support at 5948 (100 day simple moving average, the next major support levels are 200 SDMA(Simple Day Moving Average) at 5605) and 5348.

Long-term investors and people who have interest in investing in the stock market can utilise this fall to acquire good stocks at every decline, in a phased manner. Buying Nifty January put option of 5600 is advisable; the position can be kept for a maximum period of 3 days.

On the domestic front, we had many data lined up like the Index of Industrial Production (IIP) numbers, Infosys Q3 numbers and the inflation figures. Major slide happened in the market on the back of weaker than expected IIP and Infosys Q3 earnings. The IIP numbers were at 2.7% against 11.7% on YoY basis and below the estimated 6.6%.

The Infosys numbers were disappointing with net profit at Rs 17.8 billion down 14.2% (YoY) and net sales at Rs 71.06 billion. Banking shares slipped during the week except for a single day recovery on news that the IBA Chief has asked the Central Bank to cut Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) rates when RBI is feeling the pressure to raise key rate to tame inflation.

Also the news of CBI probing the account of certain PSU banks with regard to loans to telecom companies kept the sentiment negative. The inflation number for the month of December came at 8.43% against 7.48% in November along with fuel price index at 11.19 against 10.32 (MoM) increasing the chances of RBI stepping in to raise interest rates at their review meeting scheduled for January 25.

Banking stocks are weak; especially counters like AXIS Bank, SBI and Yes Bank are expected to fall further.u00a0 Counters like GAIL and TCS are weak and one can buy their put options.

Another major headache for the government is the soaring food price inflation. The government said that an inter-ministerial group would be set up as institutional machinery, which could read short term supply shocks, review production, rainfall trends and recommend appropriate measures to tame food price rise in future.
On the global front, China had reported a trade surplus of $13.1 billion, which was lesser than the estimated figure.

The China also facing problems of inflation, has increased the cash reserve ratio by 50 basis points on Friday, impacted their market negatively.u00a0 It is expected to fall further and can cause repercussions in our markets as well. The hike in cash reserve ratio also negatively impacted the bullion market. Gold may test $ 1356 in the short term.u00a0 Silver is likely to fall further towards $28.18. Price declines can be utilised to buy.


The US markets had an overall negative outlook even though it had a single day upside with IBD/TIPP Economic Optimism rising to 51.9 against 45.8 while the crude inventories declined to 2.2M and the initial jobless claims unexpectedly rose to 445000 from 410000. However, the trade deficit narrowed to $38.3 billion against an estimated $40 billion.

Further direction to the markets is expected after the US retail sales and industrial production data. Copper prices came down after World Bank predicted that the Chinese economy may weaken this year.

Floods in Brazil and Australia may cause supply contraction in their produces like Coffee, soybean, coal etc, in the coming days. Tata Coffee and Coal India from the stock side and Soybean from the commodity space can give good investment returns 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 alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange and the Bombay Stock Exchange

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.