Monday, June 22, 2009

Market Khabar 22 June 2009

Free float of Nifty may bring high volatility

June 22nd, 2009
By C. Kutumba Rao

After 14 weeks of sustained gains, the markets closed lower during the week ended on worries that the ongoing rally has been overdone.
On the BSE, the Sensex shed 716 points to end at 14,522 and the Nifty on the NSE closed at 4,313, down 270 points. The broader market “struggled” and ma-rket breadth was deeply ne-gative reflecting the “fra-gility” of the rally.

Weak global markets, co-urt ruling in the RIL-RNRL case and unwinding of positions by FIIs have impacted the sentiment. Positive “noi-ses” from key ministries ov-er reforms and fresh “inve-stor friendly” steps from the market regulator Sebi failed to enthuse markets. Key events to watch out for in the week ahead are the US Fed meet and the F&O settlement. Removal of 50 stocks from the derivative segment and the move to compute the Nifty on free float concept may trigger high volatility in next few days. Chartists predict a trading band of 14,100-14,980 for the Sensex and 4,080-4,550 for the Nifty. Expect resistance to the indices at 14,800 and 15,000 and 4,390 and 4,480. Supports for the we-ek are at 14,180 and 13,800 and 4,220 and 4,100. Avoid fresh longs if indices do not sustain above 14,800 and 4,380. The rate of decline by the indices has been quite strong; caution advi-sed till budget. Avoid large positions and trade lightly. Be pliable at all times, but don’t overtrade. Try to avoid holding postmortem examinations of the “might have beens” in the market.

* eClerx Services is India’s first listed KPO providing data analytics and customised process solutions to global enterprise clients from its offshore delivery centres in India. It has been featured under Forbes 200 Best under a Billion list of companies judged on a number of performance criteria including growth in sales and profitability. Despite very high average return on capital employed, the stock price is at P/E multiple of just 8. Buy at current levels for target price of Rs 350.

* Allcargo Global Logistics is one of the largest logistics service provider operating in the seven key areas of the logistics business-multi modal transport, CFS, Airfreight, transport logistics, equipment hiring, project and ODC cargo handling and Oil rig and supply vessels management. The company has acquired substantial equity in Gateway Distriparks Ltd.

Sources do not rule out M&A possibility in coming few months and also indicate stock split in near term. book value of Rs 208 and TTM earnings of Rs 42 make the company’s stock is a good buy for a target price of Rs 1,200.

F & O
Mirroring the weakness in the broader markets, volumes dipped in the derivative segment ahead of settlement week. Rollover was low at 12.7 per cent compared to usual 25 per cent.

However, the total open interest saw a rise of 7.1 per cent in terms of value and 29.46 per cent in terms of number of shares.

Nifty OI PCR has dropped to 0.91; technical bounce back from current levels not ruled out. Option activity clearly defines the boundaries of the trading range-strong support at 4,200 and resistance at 4,400.
Be bearish below 4,200 and bullish above 4,400. Stock futures looking good for speculative gains are HDIL, Suzlon, Essar Oil, Educomp, ICICI Bank, India Info, Reliance Infra, Indusind, Tata Comm., Canara Bank and Dr Reddy Labs.

Spike in counters like Srei Infra, 3i Infotech, Punj Lloyd, IDBI, GDL and IRB Infra likely. GVK Power and Tata Motors are likely to gain steam on reports of pricing of QIP’s.

True to predictions renewed buying interest was seen in banking counters. Stay invested in Axis, IDBI, PNB, Union and OBC for further gains.

Reaction to merger proposal of SBI and its subsidiary is keenly awaited by markets. VIX has ended higher at 49 indicating high volatility in coming week.

Consider strangle strategy in options because direction of markets is uncertain. Before taking a position, determine exactly where the stock you are watching, or the general market, stands. A study of price, breadth, activity, time and volume will be helpful in this respect.

Source :
C. Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.