Weekly Market Outlook - 3rd Week of May 2010 - Ashok Leyland, Kotak Bank, State Bank of India - Disclaimer Post Applies

Indian and Global Markets - Overview

Volatility is the word that defines markets this last week. We saw deep cuts in the markets followed by some buying below 5000 levels and again we witnessed selling pressures on the higher side above 5100 levels. Nifty opened this week at 5026 made a high of 5212 before finally closing at 5093. FIIs have been net sellers this week, with over 2000cr. worth of money being taken off the Indian markets.

Slowly and steadily there are several global bad news hitting the Indian markets. Although most of the people who influence the market continue to remain bullish in the long term, the medium term trend for sure has taken a hit. We believe that within the next 15 days we would witness nifty touching the 5000 mark again. However it will not be a clean fall to 5000 & we might continue to witness the Nifty volatility. So for all long term investors we advise that they start picking their stocks slowly and buy them with faith. Do not buy companies just because they have fallen 10% or 15% in the day but buy companies with strong growth stories. For example rather than buying a RNRL or Aban offshore, we would rather buy a Hero Honda or Maruti.

On the currency front, the rupee should witness levels of 46 on the dollar soon. We believe that investors should start picking stocks closer to these levels or at least the first tranche of buying should come in at these levels on the rupee. We believe that 5000 levels will be a good level to buy on the Nifty as a 40% investment and the next 50% could come in at 4800 levels on the Nifty, if we witness these levels on the Nifty. We also believe that 4700 – 4900 on the Nifty will act as definite strong support for the markets.

Technically we have daily supports at 4900 and weekly support at 4700 for the Nifty. Based on the PUT concentration we see that 5000 and 4800 which will be the definitive supports for the Nifty. However 5000 will witness some shedding once the Nifty reaches closer to 5000 levels. On the call side, since there is major concentration of CALLS at 5200 and 5300 they will act as the definite resistance zones for the Nifty.

The last 3 sessions we saw several tops being formed at 5200 so as long as 5200 is not broken the trend will shift downwards. Shorts got squeezed out of the system this Monday but we saw no follow through buying coming in. Every morning, this past week we would start of strong due to DII buying but then post noon FIIs would come and sell their holdings in the market which would essentially drive the markets lower.

Globally, there is a lot of bad news for the economies worldwide. The US seems to be building on a slow and steady recovery. The EU seems to be facing several debt issues due to which the Outlook on these economies is negative. China raised its rates and there is a property bubble being formed according to some.

All this makes me ask one question: If the volatility is here to stay? The answer to this seems to be yes for the moment. But looking at the charts it becomes easier to assume that we have made a trading range for ourselves broadly from 4700 – 5300.

For the Indian markets this next week we are expecting a lot of data one being the IIP number, inflation numbers and several corporate results. However the softening commodity prices could help India keep inflation under check.

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Commodity Market Overview

On the commodities front, we have been bullish on Gold since the past several months and the result is in front of you where gold is now trading at its life time highs. Rest of the commodities including crude will head southward because the demand seems to be fading globally. Chinese markets are weighing on the commodities along with the European Union. We have been sharing Jim Rogers view of $65/bbl for the crude which might change in the weeks to come. However we believe that 8 months from now we will see crude trading at $88/bbl to $105/bbl.

View on Indices - Weekly Outlook

1. Bank Nifty
1. This index has made a classic bearish pattern. If this index does not find buying then this index could fall to levels of 9400 from its current level of 9589. The first support will come in at 9500 which might be outweighed by State Bank of India alone. A trader can short this index for a target of 9500 / 9482 / 9470.
2. CNX 100
1. This index is trading at 5068 which is a ‘sold’ region for this index. However there might actually be some more downside left for this index which could take it to sub 5000 levels. However we might see a dead cat bounce in this index. We believe that this in an index to avoid for the moment.
3. CNX IT
1. This index is again in a ‘sold’ zone. It tried to go higher in the past 2 sessions but then took off the gains of both the sessions in this past session itself. So where this index started the week at 5780 has remained almost flat for the week ending at 5839. We believe that at 46 levels on the rupee this index will witness buying. TCS & Infosys remain our top picks in this index.
4. Nifty Midcap 50
1. This index has the same case as the CNX IT index. We believe that it’s best to avoid this index right now. If its support level of 2725 is broken which is barely 3 points from its current level of 2728, then we will witness this index to fall below 2700 levels.
5. S&P CNX Nifty
1. This index is trading at 5093 and as mentioned earlier will witness some downward pressures. We believe that one can start buying in the stocks that comprise this index at 4950 levels on this index rather than trading this index.

Trading Stocks Ideas

1. Ashok Leyland
1. This stock can be sold at 67.2 for a target of 66.
2. Kotak Mahindra Bank
1. This stock can be sold at 759 for a target of 747.
3. State Bank of India
1. This stock can be sold at 2222 for a target of 2200.

Hedge these shorts with Nifty 5100 call and buy it at Nifty levels of 5000 so that you get it cheaper.