Sunday, August 08, 2010

Weekly Nifty Update 07 August, 2010 by Tanmay G Purohit

Nifty moved higher this week as it closed up by 72 points at 5439 and it has recovered last week’s losses easily. Leading the gains were TATA MOTORS, BHARTI AIRTEL, KOTAK BANK, HCL TECH, WIPRO which rose more than 5% each while SAIL, RPOWER, RCOM pressurized the indices falling more than 3% each.
Economy has been supportive so far with the bull market in India and the HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 57.6 in July from 57.3 in June when it slipped from a multi-year high, but China PMI has dropped below 50 to 49.4 which indicates contraction in industrial activity which is why funds for emerging markets may get attracted towards India rather than China once again.
Steelmakers like SAIL, Tata Steel and JSW reported 18-40% drop in volumes for the quarter ended June, while cement sales hit a 57-month low, but demand grew at 2.51%, even as prices have declined 10 per cent – both industries show some slowdown pressure.
Due to SEBI decision to ban entry load, the mutual fund industry's equity assets are down by Rs 8,000 crore (net outflows), according to data from the Association of Mutual Funds in India (AMFI).
Cognizant Net profit in the April-June period rose 22% to $172.2 million, and revenue surged by $145 million, the strongest increase amongst all IT majors and revised its 2011 guidance upwards, saying that its revenue will now grow by 36%, instead of 25% earlier has boosted TECH stocks - KPIT, NIIT, APTECH, ONMOBILE and they continue to look good Technically. US Senate on Thursday passed the Border Security Bill which would require companies who have more than half their U.S. employees on H1-B or L-1 visas to pay thousands of dollars in special new fees for each worker; Som Mittal who is president of NASSCOM said, "The way they've done this, the majority of the impact is on the Indian companies," and total impact for IT sector in India could be $200 to $250 million which can have an initial negative impact this week for IT Stocks. The bill looks wrongly timed as U.S president likely to visit India in November 2010.
IPO recent success has generated interest in newly listed stocks but due to lack of price history one should not overexpose - ASTERSILICATE after listing made a high of Rs 258 and closed yesterday at Rs 101 which is below listing price of Rs 118.
Data announced for 1858 companies so far indicates a poor Q1 performance for Indian companies – Sales rose 20% while Profits have fallen 9.8%. Nifty trailing P/E is 23 while broader market S&P CNX500 P/E is 21 do not justify huge premium to other emegring markets. Detail study of result show financial sector has been outperformer and valuation are already rich while Oil & Gas is bogged down by Government polices; Metal and Capital Goods are facing supply side pressure from global slowdown where margin pressure is clearly visible. After downgrading RELIANCE now some research houses like Citi, Nomura, Motilal Oswal, Merrill Lynch have downgraded Sensex EPS estimates and selling may worsen if markets are unable to move higher.
In last 5days FIIs brought Rs.12,700crs in options  PCR from 1.28 to 1.38 ---- which means more of PUT buying ----- Derivative analsyt tell me that --- Volatility is @ years low and Open interest @ year high ------ which all indicate a major correction.   Many feel FIIs are buying daily but they are also buying puts
Technical View: Nifty has been unable to move past 5477 but until 5340 levels are held upside could still be possible. METAL stocks look weak and SAIL, JINDALSTEL, JSWSTEEL are almost near break-down levels. Adv-Decline ratio is still flat and Volumes too are not improving, so strength of this breakout is still suspect but until trend doesn’t break down we have to go with the existing move that is up. Many Small and Mid-Cap stocks have started performing and for many fundamentals don’t support, traders can have these stocks but  exit quickly whenever profits are seen, for investors I would advise stay in value picks.
Stocks looking good: MAX, APIL, FSL
Supp 5400/5340/5230 Res 5486/5536/5650

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