Expert Zone

Straight from the Specialists

Next week crucial as markets at tipping point

By Ambareesh Baliga
August 27, 2011

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

The Nifty finally gave in to selling pressure and fell below 4,800 in spite of a fragile attempt to hold on to those levels during the week.

Foreign Institutional Investors (FIIs) have pressed heavy sales this month amid the ongoing credit crisis in the euro zone and concerns back home. FII outflow for the month till August 25 totalled 12167.19 crore.

The revised margin collection system and stiff penalties thereof from September 1 also contributed to liquidation of positions. Overall, there wasn’t any silver lining to take refuge.

The coming week is a truncated trading week with only three trading sessions and we may not see too many fireworks as we saw last week though the chances of a bounce looms large considering the oversold status of the markets and comparative outperformance of the other markets.

As for cues for the coming week, auto and cement shares will be in focus as companies from these two sectors start unveiling monthly sales for August 2011 from Friday. There is also expectation of a pick-up in sales of two-wheelers, cars and utility vehicles during the upcoming festive season.

On the macro front, the government will unveil data on first quarter GDP growth on Tuesday. This may be important in providing cues on the central bank’s likely policy stance when it meets on September 16 for its policy review.

The markets are initially expected to react to the Bernanke speech where it became clear that he was not promising new stimulus measures. However, the Fed chief left open the possibility of more action if another recession looks likely. U.S. indices fell sharply initially only to recover within minutes on comments that the U.S. is on track for long-term economic growth. So a mild recovery in our markets is expected and the Nifty is likely to move above the 4750/4800 support zone.

The Nifty is likely to remain in the broader range of 4750/4800 to 5100/5200 in the near-term and a lot will depend on how the situation in the global markets and political upheaval in India pans out. Technically, a break below the current levels could see a steep fall to 4000/4100 levels.

Having said that, it may be the opportune time to start cherry picking some of the better known names like Reliance Industries, SBI and L&T as the risk-reward ratio goes in favour of the long as we are close to the bottom of the long-term chart of 1 yr forward PE.

We still believe that foreign investors would be willing to pay a premium for relatively better sustainable growth which emerging economies especially India would be able to deliver. There is a time gap between risk aversion and a revival of appetite for risk. We are currently in that cusp and investors need to have the ability to bear the pain for future gains.

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