TANMAY OBSERVES!

Weekly Update 27 Dec, 2009 by Tanmay G Purohit

Nifty closed up by 190 points or 3.82% at 5178 recovering all of previous week's losses and in addition hitting new 2009-year high at 5198 on Friday. Though Nifty is into new yearly high territory, Sensex (17360) has failed to achieve this feat as its 52-week high at 17493 is still some way to go which may happen next week if rally sustains on higher volumes. The year is closing with strong gains as both Nifty and Sensex have risen more than 75% this year so far where AUTO, METAL, IT, HEALTHCARE stocks have given fantastic returns to investors while REALTY, CAP GOODS and FMCG have remained laggards. 

This week METAL stocks dominated the up trend SAIL +11%, HINDALCO +10% and TATA STEEL +9%. NTPC moved up 11% and the company has got "Maharatna Status" along with ONGC and SAIL from Indian government, the status would provide more autonomy to these public sector units. Losers were not special - CIPLA lost 3% this week.

Food inflation softened to 18.65% for the week ended December 12, though essential items like potato and pulses continued to remain expensive. The food inflation declined by 1.30 percentage points during the second week from 19.95% in the previous week. Core infrastructure industries grew by 5.3% in November against meagre 0.8% a year ago, in line with the recovery in industrial growth. Food Inflation, though easing a bit, is still a worrying indicator as it is in double-digits from quite some time and many expect RBI rate action through CRR or interest rate hike before RBI 3rd Quarter Review on 29 Jan. Nifty bounced back strongly from 4950-support this week after FM Pranab Mukherjee said the economy can grow 7.75% in current FY and the fiscal stimulus given to the industry will not be withdrawn before the budget. The number of telephone subscribers touched 543.20 million at the end of November; with this record addition, the overall tele-density has touched 46.32% and the telecom industry is becoming "matured" now as competition is becoming cut-throat, in such a situation stocks like TATACOMM would provide margin of safety and one can accumulate this stock in dips. 

Both Nifty and Sensex have closed at yearly highest levels and a sustained move past 5200 on Nifty may take it to 5350/5500 also but next move would be characterized by euphoric rally which would give fast returns but may not last for a long time. As a trader one would do well trailing positions as gains can be huge in short period of time but protecting downside would also be equally important. Investors would do well avoiding blind investing, always look for margin of safety before putting hard-earned money. Value-buys - JUBILANT, ABG SHIP, IDBI.

Supp 5105/5058/5000 Res 5205/5350/5418

Last Weekly Update:-

Nifty closed down 129 points or 2.53% Week-on-week and it has hit 14-day low at 4979 closing at day and weekly lowest level. HEALTHCARE stocks had big buying interest this week as BSE HC Index rose 3.76% this week and RANBAXY, CIPLA, SUN PHARMA were among top gainers in Nifty. TECH stocks remained resilient through the week on the back of gains in TCS, WIPRO, INFOSYS and HCL TECH. Major draggers for index have been BANKING and REALTY as both indices fell more than 5% this week. OIL and GAS index too retreated 4% after nearly 5.5% decline in RELIANCE INDUSTRIES.

Advance Tax numbers for Q3 were out and the all India direct tax collection, which includes corporate and personal taxes, increased 8.1% to Rs 2.27 lakh crore, according to figures that are currently with the income-tax (I-T) department. Corporate tax collection has gone up by 11.3% to 1.48 lakh crore.The tax collection from foreign banks operating in India has also come down significantly, affecting the rate of growth in tax collection. Large tax-payers such as SBI, RIL, HINDUNILVR, TATA STEEL have paid higher advance tax this quarter. Overall, companies in the auto industry and pharmaceuticals have paid higher advance tax. BANKING was a dampner as the Adv Tax payments were pretty flat while the stock performance has been amazing the last one year that is why the sector is witnessing large profit-taking after disappointment in Adv Tax figures. Prices of potatoes and pulses raised food inflation to 19.95% in the first week of Dec’09 against 19.05% in the previous week and experts feel RBI may raise rates earlier than expected. Leading steel companies like SAIL JSW, ESSAR and BHUSHAN may hike prices next month to cash in on the demand surge in domestic markets after steel prices internationally have improved by about $30 a tonne in the past one month. DLF's over all debt will go up by Rs 2,200 crore as a result of integration of its whollyowned subsidiary DLF Cyber City Developers Ltd with Caraf Builders & Constructions and it may be further overhang on the stock which is already looking weak from REALTY space.  Both the BSE and NSE have postponed the implementation of new trade timings to January 4, 2010, from the earlier decided December 18, 2009. In its mid-year review of the economy, the government said GDP growth could top 7.75% during the fiscal to March 2010, as attention turns to policy measures that will be required to keep inflation under check. 

Nifty has broken down from the range-bound trade and the triangle is also broken which indicates any sustained move below 4950 and Nifty may test 4840/4805 as next support in this fall. Move past 5100 would be necessary to show some strength but the formation of triple top is very bearish and it seems to have started working now. Avoid leveraged positions and invest where value is available. GLENMARK, SUZLON, PTC, EMCO would provide margin of safety.

Supp 4939/4841/4730 Res 5068/5153/5228