Mktviews Weekly Techno-Funda Analysis (21/05/2012 - 25/05/2012)

Last Week Indian Markets continued its losing streak over concerns of Rupee plummeting to record low levels, surge in Inflation levels over 7% as well as Eurozone worries on A/c of uncertainty over Greece bail-out following political chaos in Greece. Cuts in Indian Markets would have been more deeper had it not been better than expected results by SBI which rescued the markets & markets escaped with modest losses on a weekly basis. 

Key benchmark indices Nifty & Sensex declined almost 1% each while small-cap & mid-cap indices tanked 2.19% & 1.4% respectively under performing the broader markets. 

Sector-Wise FMCG, Pharma & IT outperformed the markets registering around 1-2% gains owing to depreciating rupee while rest of the sectors extended their losses with Auto witnessing cuts over 5% along with Power, Oil & Gas, Capital Goods & Banking all losing around 1-2%. 

Also compared to Global markets, Indian Markets have outperformed by cutting its losses around 1% while US, Europe losing around 4.5 - 6%. Among Key Asian indices, Nikkei declined by over 3.8% & Hang Seng by over 5%. 

Rupee has extended its slide & plummeted till record low levels of 54.91 before recovering & closing around 54.42 levels on Friday. It is important to note that its not only INR that is being hit but currencies all round the world are being pounded on A/c of the risks faced by Global Financial system as a repercussions of political turmoil in Greece & Eurozone as a whole. Any further slide in Rupee can severely impact inflation management which has a direct correlation on growth & fiscal deficit. Balance Sheets of those companies who depend heavily under FCCB's which have to be repaid in 2012-2013 are severely impacted. 

Inflation as per latest data has surged upto 7.23% for April from 6.89% a month before. This rise in Inflation along with the sliding rupee leaves no room for the Central Banker to cut interest rates. 

During the week, sell-off was witnessed in all global markets due to worsening European Debt crisis with concerns arising on account of potential Greek exit from the Eurozone after Greece being set for fresh elections next month. Also Greek banks are facing pressure as people have started withdrawing deposits along with European Central Bank. This has led to Fitch downgrading Greece's long term credit rating to CCC from B-. Moody's has downgraded 26 Italian Banks as well as lowered credit rating of 16 Spanish banks. As a result, Italian & Spanish sovereign debt yields have hit all time highs while Euro has hit its lowest level in nearly 4 months dipping upto $1.28. 

Nifty PCR has decreased from 0.95 to 0.91 levels. Though Good amount of unwinding was witnessed on Friday in 4900 CE but significant amount of Open Interest was still prevailing in 5000 & 5100 CE. 

High Volatility was witnessed in trading throughout the week with Nifty VIX increasing from 21% to 24%. Nifty Futures closed at a discount of 3 points against previous week's close at a premium of 2.5 points vs its Spot. 

Though Markets after hitting lows of 4767 on Friday recovered upto 4900 levels post better than expected results announced by SBI, but the question arises over the sustainability over this pullback as rupee is continuously threatening to hit further new lows as well as events from Eurozone could still unnerve the markets going ahead. 

Nifty Futures has exactly reversed from 4767 on Friday which is 78.6% Fibonacci Retracement levels of the rise from 4538 (Lows of 23/12/2011) & 5640 (High on 22/2/12). 

Going Forward, Nifty Futures may face critical resistance @ 4996-5013 zone. 

If 5013 is not crossed, Nifty Futures may once again retest support zone of 4755-4760. 

Further panic selling upto 4665/4561 may be triggered if Nifty Futures break & close below 4755. 

Only if Nifty Futures crosses & sustains above 5013, further pullback upto 5105/5165 could be witnessed. 

Probable Trading Range for the coming week could be 4755-5013. 

Markets could therefore witness selling pressure on rises till any sign of reversal is visible in the movement of INR vis-a-vis USD & any positive news-flow emerges from troubled Eurozone area. Hence Even if any pullback is witnessed in Markets, Avoid aggressive buying thinking that the bottom is in place. Instead reduce your long positions on every rises as further fall is likely. 

 

Regards,
Team Market View Investments. 
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