Archives : PRANAB SURPRISES THE MARKET - 26/02/2010

PRANAB SURPRISES THE MARKET - 26/02/2010.

SHORT COVERING RALLY.

GOOD BALANCING ACT BY THE FM.

TECHNICALLY SPEAKING.

INDEX LEVELS.

LAST WEEK’S RECOMMENDATIONS.

THIS WEEKS RECOMMENDATIONS.

WATCH OUT FOR.


PRANAB SURPRISES THE MARKET - 26/02/2010.

SHORT COVERING RALLY. 

The FM presented a Budget which was not only growth oriented, but laced with reforms and at the same time keeping the fiscal deficit in check. It cheered the market no end, and the market ended the day with a gain of 175 points on the Sensex. All this came at a time when the market was very low on expectations and went into the Budget very light. The day before was the expiry of the Feb series and many retail traders as well as HNIs did not rollover their positions to the next month series. As a result majority of positions which were rolled over to the March series were on the short side, as suggested by the very low cost of carry. As the Budget sprang up positive surprises, the shorts started to run to cover their positions and this led to a short covering rally which made sure that the Nifty reached the second pull-back level of around 4992. The market ended the day lower as we head for a long weekend and once again we get ready to react as per the global market movement.

GOOD BALANCING ACT BY THE FM. 

It helped as the market went into the Budget with very little expectations and were pleasantly surprised by the Mr. Pranab Mukherjee as he presented a Budget which can be termed positive and reform oriented.

 

Ø      The market really cheered when the FM presented a roadmap to tackle fiscal deficit. He will try to rein in the fiscal deficit to 5.5% of GDP for FY11, 4.8% for FY12 and 4.1% for FY13. Considering the failure of PIGS in Europe due to high fiscal deficit, the FIIs were hoping that a clear roadmap be given and they got that.

 

Ø      FM cheered the middle class when he reduced Income Tax. There will be no Income Tax for income upto Rs.1.6 lacs, 10% for income between Rs.1.60–5 lacs, 20% for income between Rs. 5-8 lacs and 30% for income above Rs.8 lacs.

 

Ø      FM pleasantly surprised the market when he announced the NBFCs could apply for banking license. It seems the ADAG group will now be able to fulfill their dream of converting Reliance Cap into a bank; as also the governments wish to merge IFCI into a bank.

 

Ø      With this Budget the much talked about withdrawal of Stimulus has begun. The Excise duty has been hiked by 2% from 8% to 10%, coupled with increase in MAT by 3%. This partial rollback of Excise duty will impact the prices of two and four wheelers and cigarettes.

 

Ø      One minor shock was the proposal to restore the basic duty of 5% on crude petroleum, 7.5% on petrol and diesel and 10% on other refined products. This coupled with an increase in Central Excise duty on petrol and diesel by Re.1 per litre each. This will make the petrol dearer by almost Rs.3 per litre and diesel by around Rs.2.50 per litre. As a result of this move, inflationary pressure is bound to increase further.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 16191, made a high of 16669, a low of 16167 and closed the week at 16429. The Sensex closed the week with a gain of 238 points. Similarly Nifty opened the week at 4849, made a high of 4992, a low of 4833 and closed the week at 4922. The Nifty too closed with the week with a strong gain of 78 points.

 

Both the indices managed to form a white body candle on the weekly chart with a slightly long upper shadow and a negligible lower shadow. The formation on the daily charts on Friday too shows a similar formation as shown on the weekly charts, suggesting some sort of profit booking ahead of the long weekend.

 

Two weeks before both the indices formed a Bullish Harami reversal pattern on the weekly charts which led to a pull-back of the recent fall of the Sensex (17790-15651) and Nifty (5310-4675). The pull-back levels for the Sensex are 16468-16721-16973 and for the Nifty, the pull-back levels are placed at 4918-4993-5067. This week Nifty has tested the 50% retracement level of 4993 and went down from that level. Sensex too faced a similar fate. It is necessary for both the indices to cross the 50% level immediately for the pull-back to continue.

 

The short term trend has turned up and the medium term trend will turn up if the Sensex and Nifty manages a close above the critical 50dma and 100dma. Sensex (50dma – 16782 and 100dma – 16807) and Nifty (50dma – 5013 and 100dma – 5008) are almost coinciding and the market will see strong upward momentum once it is able to cross and close above those levels. The long term uptrend remains intact as the market remains above the 200dma (Sensex – 15910 and Nifty – 4744).

 

Both the indices have formed a Bullish Reversal pattern known as Inverted Head & Shoulders pattern. As a result of this, the Sensex will have a target of 17319 and Nifty 5189. Both the targets will be achieved as long as the Sensex remains above 16074 and Nifty above 4805.

 

All the oscillators like MACD, RSI and ROC have given Buy signal and are continuing with their buy mode. The Directional Indicator has signaled a Buy as +DI has crossed over –DI from below.

 

Short term moving average 5dma has crossed higher moving average 13dma from below and as a result of this crossover; a short term buy has been signaled.

 

Nifty OI PCR is a lot better at 1.33, which is showing that some confidence is being restored in the call writers. Call writing is seen at 5100, which supposedly should act as a resistance going forward and Put writing is visible at 4800 strike which should act as a strong support in case of a fall.

 

For the week ahead, Sensex will find Support at 16167-15935-15725 and will find Resistance at 16669-16943-17171.

 

For the week ahead, Nifty will find Support at 4833-4766-4705 and will find Resistance at 4991-5070-5178.

INDEX LEVELS: 

 S3S2S1CLOSER1R2R3
Nifty4705476648334922499150705178
Sensex15725159351616716429166691694317171

LAST WEEK’S RECOMMENDATIONS:

All the targets were reached except for Punj Lloyd but the other stock in the pair Glaxo more than made up for that. Glaxo went up Rs. 80/=. 

PAIR NO.STOCKRec.priceTgt Reached Lot sizeProfit
1BuyEducomp708728733375Rs. 9,375
SellTataPow124012131198200Rs. 8,400
2BuyBEL205320952092276Rs. 10,764
SellHDiL302290289774Rs. 10,062
3BuyGlaxo165117051731300Rs. 24,000
SellPunjLloy1731661701500Rs. 4,500
      ProfitRs.67,101

THIS WEEKS RECOMMENDATIONS: 

STOCKCMPSLTgt-1Tgt-2
Buy IDFC159155166173
Buy Rel Cap786763816848
Buy PNB901883930951
Buy Hero Honda1777175218161842
Buy Sesa Goa400391413428

WATCH OUT FOR:

IDFC

Rel Cap

Disclaimer : The recommendations made herein do not constitute an offer to sell or a solicitation to buy any of the securities mentioned. No representations can be made that the recommendations contained herein will be profitable or that they will not result in losses. Readers using the information contained herein are solely responsible for their actions. Information is obtained from sources deemed to be reliable but is not guaranteed as to accuracy and completeness.

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