MARKET KHABAR By C.Kutumba Rao Deccan Chronicle Dated:23.02.2009

Rally in markets hinges on RBI rate cut February 23rd, 2009


By C. Kutumba Rao
Spooked by lacklustre interim budget and deepening global recession,
markets witnessed the biggest weekly fall since October. On the BSE,
the Sensex closed below the 9,000-level shedding 792 points at 8,843
and the Nifty on the NSE tumbled by 212 points to end at 2,736.
Disappointment over the lack of stimulus package for the economy in
the budget and weak global cues have triggered yet another wave of
sell off from FIIs.
Domestic institutions were also in sell mode. The only positive
trigger left before the announcement of the general elections is the
possibility of interest rate cut by the RBI due to a sharp fall in
inflation. True to predictions, gold prices crossed $1000 per ounce
mark as investors flocked to the yellow metal to preserve capital amid
fears of financial and economic instability.
Given the plunging stock markets, gold prices could touch $1150 an
ounce due to investment and speculative buying.
It is pertinent to note that the US, Japan and Europe fell into the
first simultaneous recessions since World War II. Markets are still
facing confidence crisis making investors risk-averse.
For the week ahead, chartists predict trading range of 8,360-9,400 for
the Sensex and 2,570-2,880 for the Nifty. Expect support for the
indices at 8,630 and 8,340 and 2,660 and 2,570.
A rebound may see indices encounter stiff resistance at 9,340 and
2,870. Indices are likely to remain in the choppy range for the next
couple of weeks. Avoid adventurous large trading positions for the
time being.
In sports, gambling, inves-ting, and life, there is little value in
knowing what happened yesterday. The rewa-rds come from anticipating
the future.
SATTA GUPSHUP
* Scepticism about CEOs has become a factor for weakness in US
markets, as worries remain that another Ponzi scheme could be brewing,
along the lines of Bernie Madoff or Robert Allen Stanford. Similar
situation is developing in India after the Satyam fraud.
Companies belonging to high profile promoters such as Mr Vijay Mallya,
Mr Anil Ambani and second rung promoters like Shantanu Prakash
(Educomp), Tulsi Tanti (Suzlon) are facing the 'heat' of investors.
With more skeletons from the corporate cupboard likely to get exposed,
investors sho-uld do homework on stocks more diligently.
* Market players are of the view that the revision of the market lot
of 243 stock futures would entail a sharp rise in the trading cost as
more margins would be required to trade. After the revision, lot sizes
of some stocks are huge in quantity like NFCL (21,000), GVK Power
19,000), Dish TV (20,600) and Ispat Inds (24,800). Manipulation of
prices due to the low participation is possible, say old timers.
Tread carefully in stocks with large lot sizes. Caution indicated in
15 securities (Orbit, Brigade, Matrix, Purvankara, Parsvnath, Core
Projects, NIIT Tech and others), as these are going out of F&O segment
from March series onwards. Short squeeze in some counters not ruled
out.
F & O
Post-interim budget, heavy unwinding of positions was seen in the
derivatives segment. Both February and March futures of Nifty were
seen trading at steep discount to spot. Roll-over of open interest
ahead of settlement week gives a mixed picture.
The rollover in Nifty was mostly on the short side, while changes in
lot sizes impacted the rollover in many stock futures. Open interest
was highest in the Nifty 2,800 strike call opt-ion and Nifty 2,700
strike put options. Sentiment indicators like India VIX, put/call
ratio, open interest and implied volatility indicate heightened
volatility.
Auto, power, capital goods and FMCG witnessed good rollover.
Expectedly banking counters witnessed hea-vy selling. Accumulate PSU
bank counters for medium-term returns. Cement and sugar counters
showed some resilience. Buy at current levels for both short and
medium-term gains. Metals, realty, infrastructure, telecom and IT
continued to play see-saw.
Use rallies to initiate shorts at higher levels. Valuation of Satyam
Computers in the proposed sale of the company by its board may trigger
action in other midcap and smallcap IT companies. Look out for
activity in 'punter' counters like Rolta, Polaris and others.
Positive open interest build up was seen in side counters like HOEC,
Great Offshore, IRB Infra, GE Shipping, Dabur, APIL, Matrix Labs and
GTL Infra. Mild rally indicated in the counters. Rumours of open offer
from Mylan are doing rounds in Matrix Labs. Never get out of the
market just because you have lost patience or get into the market
because you are anxious from waiting.
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.