Mktviews Weekly Techno-Funda Analysis (28/05/2012 - 01/06/2012)

Markets are crucially poised after registering mild gains on a weekly basis post rangebound trading amidst high volatility on A/c of Rupee tumbling to record lows, Morgan Stanley reducing India Growth forecast, Steep Petrol price hike & Fitch Ratings downgrade of Japan. 

Last Week, Key benchmark indices Nifty & Sensex registered nominal gains of 0.6% & 0.4% respectively. BSE small-cap & mid-cap indices outperformed by rising 1% & 0.6% each. Sectorally Banking, Capital Goods & Oil/Gas contributed the most in the pullback while all other sectors contributed marginally. Defensive sectors FMCG & Consumer Durables proved laggards as they witnessed a correction. 

Rupee continued its relentless slide & tumbled to a record low of 56.41 against a dollar before pulling back upto 55.37 of Friday. 

Weak Rupee is not only a mere reflection of worsening global economic outlook but is a major indicator of worsening fundamentals of Indian Economy. This is leading to reduction in capital flows by FII & causing the rupee to slide further. 

OECD (Organisation for Economic Co-Operation & Development) on Tuesday has cut India's Growth forecast to 7.1% from its November estimate of 8.2% given earlier. A day Earlier on Monday, Morgan Stanley forecasted that India's Growth could drop to 6.3% in 2012 & rise only to 6.8% a year after. 

Oil marketing Companies have announced a petrol price hike by Rs 7.5 per litre which is a positive step & has sparked off expectations that Government may now bite the bullet & go on with such bold economic policy measures in order to restore economic growth & lower fiscal burden. 

It would be crucial to see whether Government goes ahead & also hikes the price of Diesel & LPG next week or not given the stiff political resistance & public outrage against the biggest ever rise in petrol prices. 

Also news about partial rollback in petrol prices by Rs 2-2.5 per litre post 1st June are also doing rounds. 

The hike in petrol prices was not surprising as it was long over-due but the quantum of the hike surely was. The rationale given for this steep increase is depreciating rupee but given the softening of crude prices in international markets, the steep hike could have been done away with & done in small phases. 

The Most Negative impact of the fuel price hike would be on the Auto Sector which is already facing the heat due to lower sales volume on account of global slowdown as well as rising input costs due to depreciating rupee. It is important to bring the pricing parity between Petrol & Diesel prices as increasing differential between prices of the two is having a adverse impact on sales of cars with petrol variants. 

Globally, the week started with weakness following downgrade on Japanese economy by 1 notch lower on A/c of growing risk of high public debt burden due to costs associated with earthquake reconstruction spending activities. Fitch ratings have even stated that the negative pressure on the ratings would continue even if tax rate hikes in Japan is approved by the lawmakers & public at large. 

Also OECD has forecasted that global growth would witness a slowdown to 3.4% this year from 3.6% in 2011 but would accelerate to 4.2% in 2013. 

News flow w.r.t to the economic data coming out of Europe & US have been disappointing. 

Focus would still be Greece ahead of its June 17 elections as to whether it would continue staying in the Euro or prefer to exit. 

On the macro front, key trigger next week would be the release of Q4FY12 India GDP nos on 31st May 2012 as well as quarterly results of important large-cap stocks would be announced. 

Shares from the Automobile & Cement sectors will be in focus as companies from these two sectors will unveil their monthly sales data for May 2012 on 1st June 2012. 

Important Quarterly Results due this week are : 

May 28th : NMDC, IOC; 

May 29th : ONGC, Tata Motors, Sun Pharma, Power Grid, SAIL, HPCL, GMR Infra; 

May 30th : Gail, M&M, Tata Chemicals, HDIL, PTC; 

Important Global Events / Data Points due this week are : 

May 31st : US GDP (QoQ - Annualised), Q4 FY12 India GDP data; 

June 1st : US Unemployment rates, China PMI Manufacturing data, India Export-Import data (YoY). 

Nifty PCR has increased from 0.91 to 1.04 levels. Decent amount of unwinding was witnessed on Friday in 4800 CE & 4700-4900 Puts indicating that strong support is built around 4810-4830 zone & resistance around 4968-4975 zone.  

High Volatility was witnessed in trading throughout the week with Nifty VIX increasing from 23.55% to 25.15%. 

Key Technical Indicators & Oscillators Relative Strength Index (RSI) & Money Flow Index (MFI) are showing indications of a short term recovery & hence the pullback from 4780 to 4900 levels may continue further. 

Hence If Nifty Futures holds crucial support zone of 4809-4823 & crosses 4968, expect the pullback to continue upto 5056/5138 zone. 

But if fails to hold on to the above mentioned support zone & breaks & closes below 4809, then expect the fall to resume with additional vigour & lower levels of 4725/4660 would be tested. 

It is important that for any pullback to materialize, the relentless slide in rupee is arrested & it finds some support around 55.5 - 56 zone & climbs back to around 53.9-54 zone. 

Probable Trading Range for the coming week could be 4809-5056. 

Movements would be very volatile & choppy ahead of the F&O expiry for May Series on 31st May 2012. 

 

Regards,
Team Market View Investments. 
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