Depreciating Rupee, Evaporation of FII flows along with weakening Global cues have led the Nifty to breach & close below its 200 day SMA at 4 Month Lows.
Last Week, Key benchmark indices Nifty & Sensex declined by 2.3% while mid-cap & small-cap indices followed suit lower by 2% & 2.75% respectively. Sector-wise IT was the lone gainer on A/c of depreciating rupee while all other sectors witnessed deep cuts. Capital Goods & Auto were the highest losers as they declined by 5% each followed by Power, Banking & Metal losing anywhere between 3-4% each.
Rupee has witnesses sustained selling pressure & has hit 4-Month Low of 53.92 vs Dollar on account of aggressive buying of dollars by OMC's coupled with concerns over widening of trade deficit on A/c of fall in export data.
Sliding Rupee means higher purchasing price for OMC's for a barrel of OIL in INR terms & thus would make it inevitable for them to raise the domestic fuel price steeply resulting into inflation spiraling higher. It is important that RBI should intervene & not allow rupee to depreciate further.
In our last edition of Weekly Nifty Analysis, we had clearly advised that any breach of 53 on the rupee would act as a starting point of capitulation in currency as well as other asset classes. Rupee has formed an inverted hammer which indicates a possible short term reversal but it would be confirmed only when it starts trading & sustaining above 52.8. But on the other hand if 53.75 is breached on the downside, the pattern would get negated & could possibly fall further till sub-55 levels.
Another major weakness was observed int he banking sector as stocks from banking space tumbled following RBI releasing guidelines on Basel 3 norms which outlines a schedule for banks to steadily build up their capital adequacy by March 2018. Banks will have to achieve a Minimum Core Equity Tier - 1 capital adequacy of 5% by 2014 & then increase it to 8% by FY2018 in a staggered manner.
Oil Ministry has rejected cost recovery plan of Reliance with regard to KG-D6 gas block & has even slapped a hefty penalty of Rs 6600 crore ($ 1.235 billion) for fall in production. Oil ministry has stated that RIL has violated the production sharing agreement (PSC) & has willfully drilled fewer wells than it has committed.
Uncertainty over potential consequences post clarity on GAAR has also added to the pressure on the bourses. Finance Bill 2012 is scheduled to be debated & passed in the parliament this week in which few important clarifications about much discussed GAAR provisions would be made.
Government is considering review of Double Taxation Avoidance Treaty (DTAT) with Mauritius to boost its revenues. Revising of DTAT could discourage overseas investments into India as a sizeable chunk of foreign flows are routed via Mauritius . The timing of this announcement to review DTAT has come at a time when clarification on GAAR is been awaited & this could act as a severe dampener for FII inflows which have already started receeding.
Eurozone worries as well as weak US economic data continued to impact global market sentiment.
Unemployment figures for Eurozone hit a record high of 10.9% from 10.8% previously. Also Eurozone PMI pertaining to pace of manufacturing activity released on Wednesday showed a steep fall in index to 46.7 from 49.1 in March. Any reading below 50 Mark indicates contraction in activity.
Also Election Results of France are keenly awaited as it is considered as a key to the continuity of the ongoing fiscal tightening as well as austerity plans & economic stability in the region.
IIP data for March 2012 would be announced on Friday, 11 May 2012.
Important Quarterly Results due this week are :
7th : HDFC;
8th : Kotak, Asian Paints, Hindalco, Idfc;
9th : PNB, Ranbaxy, ABB, Union Bank;
10th : NTPC, Lupin, Apollo;
11th : Dr Reddy.
Nifty PCR-OI has decreased from 1.1 to 1.04 levels. Significant built up is witnessed in 5100-5300 calls while huge unwinding has been observed in 5200-5400 PE & it has shifted to 4900-5000 levels.
VIX seems to have bottomed out & has been on an increasing trend from 17% to 21% indication high volatility in the coming days.
Also Nifty Futures premium to its spot has shrinked from 23 points a week earlier to 11 points now indicating weakness creeping into the markets.
Markets are not sustaining at higher levels & distribution patterns are visible at higher levels. Avoid unhedged over-leveraged positions. What has happened till now was consolidation at higher levels with a negative bias.
Since Nifty has broken below crucial 5180 levels, it can witness lower levels upto its long term support zone 4918-4937 but closing below 4937 would trigger panic selling upto 4819/4756.
Nifty Futures will now face critical resistance @ 5198-5218 zone. Only a cross-over above 5218 with strong volumes would enable pullback upto 5309/5375 zone.
Use these pullbacks to exit/reduce long positions on all rises.
Probable trading range for the coming week would be 4918-5218.
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