After moving in a narrow range for the most part of the week, markets gave a thumbs up to Budget and ended on an optimistic note during the week ended.
On the BSE, the Sensex added 1.5 per cent to close at 16,430 and the Nifty on the NSE gained 1.6 per cent to end at 4,922. Volumes remained robust through the week and spiked sharply higher in the budget session. Intraday cut in the gains at the fag end of the budget day has been attributed to some “devils” in the fine print of the budget. Sceptics warn that vision statements like higher GDP curve of 10 per cent and deficit curve of four per cent are for the consumption of FIIs. However, optimists say that market is unlikely to face any unpleasant policy changes in medium term since the government needs a buoyant stock market to meet its disinvestment targets. Any rollback of proposals like fuel price hike may dampen the sentiment. Despite no negatives in the Budget, excessive exuberance is not warranted, caution old timers.
Focus of the markets will now shift to upcoming credit policy, Q4 earnings season and monsoon predictions. For the week ahead, chartists predict trading range of 16,060-16,840 for the Sensex and 4,780-5,060 for the Nifty.
Expect strong resistance to the indices at 16,660 and 16,800 and 4,990 and 5,060. Immediate supports for the indices are at 16,280 and 15,940 and 4,860 and 4,780. With the Budget out of the way, it is back to watching global markets. The search for next Greece is already on; stay tuned for unexpected nasty surprises.
Futures & Options
Despite being settlement week and laced with the Budget, robust trading volumes were seen in the derivative segment. Overall rollover of 84 per cent as against three months average of 85 per cent was seen.
Sentiment indicators like open interest, put/call ratio, implied volatility and VIX indicate heightened volatility in near-term. Option activity in Nifty clearly indicates strong resistance at 5,000-5,100 and good support between 4,700-4,800 levels.
Recapitalisation proposals in the Budget are positive for PSU banks such as IDBI, Union Bank, Syndicate Bank, Dena Bank and other banks with tier-1 ratio of less than eight per cent. Use present weakness to accumulate bank stocks for the medium term. Higher allocations for construction and infrastructure spell good times for large infra players such as HCC, GVK Power, Lanco Infra and others. Stay invested for present. Avoid cement, IT and FMCG for present till the budget dust settles down.
Use sharp corrections to buy IT majors like Infosys, Wipro and TCS. Impacts of budget proposals on auto and auto components to be neutral say industry experts. With recall issues plaguing auto companies across the world, range bound activity indicated in auto counters in near term.
Ahead of 3G auctions, telecom stocks may rebo-und from current levels. Gutsy traders can buy Bharti, Idea and Tata Communications at current levels. Metal stocks are back in limelight on reports of firm international trends and domestic demand. Buy on declines Tata Steel, SAIL, Hindalco, Nalco and Sterlite. Announcement of split of Nalco divisions likely in near term, say sources.
At a time when the repercussions of recent global financial crises are still being felt and the attendant focus on shoring up the capital base of existing players with tighter supervision is there, budget proposals regarding new banking licenses to private sector including non-banking finance companies have been a big ‘surprise’ to the sector. Among those with ambitions of setting up a bank are ADAG Group (Reliance Capital), Tatas (Tata Capital), Aditya Birla Group and the TVS Group (Sundaram Finance). From the new age NBFCs like IndiaBulls, Religare and Edelweiss may also be inte-rested. Keep close watch on the sector.
Green budget has put focus on the stocks of renewable energy sector. Clean energy cess on coal and reduced duties for equipment required for setting up solar photovoltaic and wind energy units clearly reflect the renewed focus on the sector to tackle climate change. Stocks like Suzlon Energy, Moser Baer, Websol Energy and many smaller firms, which are moving into the sector may hog limelight in coming months. Fly by night promoters may use the same old game of ‘name change’ marking entry into this sunrise sector and exploit the market fancy for the sector. Discriminate between good and bad.
Food processing sector has been offered a slew of concessions in the budget. With agriculture retail business going organised with the entry of big players like ITC, Bharti, Reliance and smaller ones like REI Agro, the sector is poised for big take off. Keep watch on companies that may provide capital goods for the sector and also on agri stocks like Jain Irrigation and others.
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.
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