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Will Nifty 4700 level be taken out?

This article was posted on Jul 28, 2009 and is filed under Market Outlook

MUMBAI: The Nifty is within 3% of its highest point of the rally which began on the 9th of March. The debate is still on as to whether we have begun a secular bullish trend once again and whether whatever we have seen over the past four and a half months is evidence enough to support that.

The results of the financials in the US for two quarters running have been good, and what is more impressive is that the knee jerk reactions to the election win of the UPA and the perceived disappointment to Budget 2009, along with uncertainty in monsoon, a volatile commodity market, the health of the global economies.

And since, we are in the midst of it the uncertainty of the prospects of earnings in India – this market has had so much to contend with over the past 4 months, and in the face of all that to be back at near the high point of this rally, is an extremely strong statement that things may, just may have turned. In this backdrop it is entirely possible that August and September may land up being months of consolidation.

The key focus of course will be the primary market, with NHPC, Adani Power, and Oil India among other disinvestment noises that may emerge as time wears on.

After the blowout session the markets had on Thursday, Friday turned out to be another strong day. Despite there being a correction of 70 points from the high point of the day on the Nifty a little after noon, all ground was recovered by the time trade closed out for the week, a one in which all the frontline benchmark indices piled on between 4 and 6%.

The pressure in the early part of trade was visible in the premium on the July Nifty Futures coming down to 7 points from 11 (August remained largely unchanged at the 11/12 point mark).

The pull back though once again saw the futures take center stage with the value of transactions on that side of the market rise by Rs 1491 crore; the value of the options side of the market meanwhile increased by Rs 1350 crore.

The Nifty OI PCR in this volatility remained largely unchanged with a marginal uptick to 1.30 from 1.29 (remember Thursday saw a blow out in the PCR to 1.29 from 1.22). The strong internals of this market provide comfort that each time the market goes up it is broad based and not hollow.

We have been striking good breadth of better than 3:1 on the NSE on most days we have seen the Nifty rise and turnovers too have been 1 lakh crore or better. The Nifty OI PCR at 1.30, Nifty IVs around 34% and the NSE Vix around 35% give comfort that technically too, things are not out of control – if anything they suggest that the market, if the momentum on turnover and liquidity sustain, may take out 4700 too on the Nifty convincingly.

On the liquidity front, the FIIs on Thursday and Friday have put in $280 mn plus ($135 mn coming in on provisional data for Friday). Even on the Futures front even though FIIs sold $65 mn on the Index Futures the addition of near 4.5% of contracts speak of the longs that entered in from the days lows – the uncertainty about how much this rally would last has kept the FIIs buying Index Options too last couple of days and on Friday too they bought $65 mn.

These figures are a lot less than they were when the Nifty was last at 4700, which is also something the traders could take heart from.

The immediate range for the Nifty seems to be 4400 – 4700. The Puts at 4400 and 4500 have added 4.5 – 5 lakh shares in OI and the 4600 – 4700 Calls have added 2 lakh shares in OI on average.

That, might I reiterate does not mean the Nifty will not break out over 4700 – just that it will be on focused on earnings and the credit policy.

Reliance profits falling 11.5% and GRMs being under the pressure they are, and ICICI Bank’s profits beating expectations even though NIIs and NIMs along with NPAs were nothing much to scream home about, could provide for an interesting tussle on the markets, especially since the US market cues to wind off an eventful week were flat.

The pressure immediately could be on the downside, but given the result season by and large so far has been better than expected, it is possible any weakness gets bought into intraday. Watch out for Tata Motors, Ashok Leyland, Punj Lloyd and NTPC’s results. Other interesting stocks to watch on results would be Ranbaxy and JP Associates.

There is no question that EPS estimates will be reworked on the basis of Q1FY10 earnings, but the question is has the market already worked that in and is 4700 once again where technicals and fundamentals collude and we get capped?

A big week of data beckons! Trade wise.

source: UTVI

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