Awaiting Nifty settlement above 5500

June 25, 2011

(The views expressed in this column are the author’s own and do not represent those of Reuters)

It was a volatile week for the markets which saw the Nifty slipping to as low as 5186 before ending up 2 pct. The coming week is also expected to be volatile as derivative contracts are due for expiry on Thursday.

We saw both the bulls and the bears meet their nemesis last week. The beginning of the week saw the last bull on the street getting butchered and with important support levels broken, most of us expected Nifty to move to a lower range. The bears ruled the roost for two days only to be mauled on Friday which resulted in huge short covering.

The week began on an ominous note with downbeat news that the government is reviewing a double tax avoidance treaty with Mauritius. The shares pledged by company promoters became a big issue with respective stocks falling in excess of 10 pct.

Data suggests that 840 companies have pledged shares worth more than 1.5 trillion rupees with as many as 600 company promoters pledging more than 10 pct of their holding. Furthermore, the Greece debt problems continued to remain an overhang as the week began.

To add to the woes, the India Meteorological Department (IMD) revised downwards the forecast for monsoon rains at 95 pct of the long-term average overall, down from its earlier forecast of 98 pct. This comes at a time when India’s food inflation remained uncomfortably high at 9.13 pct in the year to June 11.

Once again, reports of a fuel price hike by the government resurfaced. PSU oil marketing companies gained as a result. The rally could continue for a day or two as diesel, LPG and kerosene prices were raised late on Friday evening along with a cut in import duties.  Meanwhile, crude oil prices touched $90 a barrel as a result of the International Energy Agency’s (IEA) decision to release emergency stockpiles. Aviation stocks were the resultant gainers.

Despite the aforesaid factors making markets jittery, the impressive ending session shows the potential of the Indian market. Nifty jumped around 3 pct towards the close of the week due to massive short covering after Greece reached an agreement with the European Union and the International Monetary Fund over further austerity measures.

We have monthly sales data for June 2011 for automobile and cement firms from Monday which will keep the related stocks in the limelight. Automobile sales for June are expected to be disappointing especially from the commercial vehicle (CV) & passenger vehicle (PV) segments, while 2-wheelers and 3-wheelers would continue to show decent growth.

CV volume for Tata Motors and Ashok Leyland would be hit on account of a high base and vulnerability to high interest rates. PV makers like Maruti saw a 13-day strike and its annual plant maintenance shutdown, which led to production loss. We expect Hero Honda and M&M to outperform, while Maruti, Ashok Leyland and Tata would be the underperformers.

On the global front, the Greek government faces a vote next week on the austerity measures to secure a new bailout from the European Union and IMF. Overall, it’s going to be an eventful week with levels of 5500 for Nifty being an important level to watch out for.

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